Upended energy prices and increasing market fears have bolstered inflation in the Euro Area. This, in turn, has exacerbated the euro's struggles in the short term as the energy crisis deepens. You can read more about that from our last analysis of crude oil.
Earlier today, Eurostat revealed record inflation in the Eurozone for February, beating the market forecasts. Consumer prices are likely to continue soaring in March as fighting in Ukraine intensifies. Russia is becoming increasingly more isolated internationally, as Joe Biden announced a new round of sanctions on the country during his State of the Union speech yesterday.
All of this exacerbated the single currency's struggles in the short term as the EURUSD falters. The massive downtrend of the pair, which commenced following the completion of a Double Top pattern, can be seen on the weekly chart above. It is represented as a descending channel.
Following some initial consolidation around the 61.8 per cent Fibonacci retracement level at 1.12954, the price action was able to break down below it decisively. This happened after a misleading throwback to the 200-day MA (in orange).
The price action is now sinking towards the previous swing low at 1.08000, which was reached in the wake of the coronavirus crisis.
According to Eurostat's findings, headline inflation rose to a fresh record of 5.8 per cent in February from the 5.1 per cent recorded a month prior. The consensus forecasts were anticipating an upsurge to 5.4 per cent.
This follows a marginal stabilisation in economic activity and climate in the euro area, but inflation looks poised to continue climbing higher as there is no end in sight to the energy market turmoil. The latter is being made worse by the uncertain prospects of cease-fire talks between Russia and Ukraine.