Headlines

*Euro hits fresh two-decade low on concerns over energy prices

*Fed minutes could bolster bets for 75bp rate hike in July

*Crude is firmer after yesterday’s selloff, but recovery is limited

*German industrial orders grow slightly in May, reversing trend

USD is pushing to new multi-decade highs today. DXY has traded just above 107 while EUR/USD continues to sink, now below 1.02. The single currency remains pressured after largely weak Eurozone construction PMIs. GBP is also precarious as more UK Tory party MPs quit to pile the heat on PM Johnson. Cable is back below 1.19 after a brief rebound. JPY is outperforming with the crosses maintaining downward momentum.

US equity futures are mixed to trading lower. The Wall Street reversal yesterday saw stocks recover all their losses, with the energy sector suffering. Asian stocks slipped while investors snapped up defensive shares. Europe has given back some of its gains with retail, tech and median among the best performers. Bargain hunters chased tech stocks which masked a deepening slump in stocks linked to economic activity.

Market Thoughts – Gas crunch worsens

The continued rise in European natural gas prices looks to be a key driver in FX markets currently. One year ahead (Dutch nat gas) prices have spiked 30% higher over the last few days.  A strike by Norwegian gas workers is potentially coming at a time when there is scheduled maintenance on Nord Stream from July 11-21. Of course, this all highlights the region’s dependency on Russia supplies.

The German government is being dragged into state bailouts of utility companies. Indeed, the German economy minister has talked about gas as potentially being a “Lehman” moment. The stakes are high with speculation about gas rationing. In turn, this is hitting European growth prospects and ECB policy tightening expectations.

Chart of the Day –EUR/USD plunges to new lows

Continued Fed tightening amidst a global slowdown remains a very positive environment for the greenback. Investors will digest the FOMC minutes later today. The debate centres around whether the coming recession is good news (more stimulus from the Fed) or bad news (stagflationary, tying the Fed’s hands).

Meanwhile the trade-weighted euro is making new lows for the year. The ECB response to high inflation is being repriced. Parity in EUR/USD seems all but certain now we have broken down through previous support at 1.0341. This becomes strong resistance. We are getting into overbought territory but the failure above 1.05 last week set the scene for the long-term bear trend to reassert itself.