- Rabobank: The Fate Of Eurozone Fragmentation Is In The Hands Of Putin
by Jane Foley, head of FX research at Rabobank, via https://www.zerohedge.com/
EUR/USD has edged lower, to just a whisper away from parity. The move coincides with yesterday’s closure of the Nord Steam 1 pipeline for maintenance. This transports around 55 billion cubic metres of natural gas every year from Russia to Germany, under the Baltic Sea. The maintenance is scheduled to last for ten days. Politicians, investors and speculators see risk that Putin may not turn the taps back on in time or that a reduced supply could come back online as the economic war between Russian and the West and its allies intensifies. If the scheduled maintenance of the pipeline is extended it would undermine the ability of Europe to store gas in preparation for winter. The result could be even higher energy prices or, potentially rationing for heavy industrialised users. In turn this could means job losses in Europe and recession. Not only does the latter imply that the window of opportunity for the ECB to hike rates would be limited, but it also increases the likelihood of fragmentation issues coming to the fore within the Eurozone. All of this spells out a why the EUR has been under pressure. The fact that last week’s better than expected US payrolls report has underpinned the view that the Fed will hike rates by 75 bps later this month is only serving to enhance the pressure on EUR/USD.