EUR: Gas price corridor on the way?

The euro should remain heavily impacted by sterling’s swings in the near term, and
here the correlation appears to be stronger on the downside: i.e. the spillover from
another sell-off in gilts would likely have an asymmetrically larger impact on the
euro than the positive implications of a recovery in UK sentiment.
Domestically, this may be the decisive week for EU members to reach a final
agreement on coordinated measures against the energy crisis. Over the weekend, a
draft indicated that the proposal of a price corridor for wholesale gas transactions
was set to be explored: this may be a bridge between the requests for capping gas
prices and the concerns that a fully-fledged cap would lead to increased
consumption. The content of the coordinated measures could have a more longlasting impact on the euro than the ECB’s policy direction, at this stage.
On the data side, the ZEW survey and final CPI numbers will be in focus this week.
Also, expect to see some interest in Italy’s new government formation, and the
choice of key ministers by the new Prime Minister Giorgia Meloni. After failing to convince the European Central Bank’s Fabio Panetta to take the role, Meloni looks
set to choose Giancarlo Giorgetti as finance minister. He is a member of Meloni’s
coalition partner, the League party, and the minister for economic development in
the Draghi government. Especially at an early stage, it’s hard to see the new
government (and the new finance minister) diverging significantly from Draghi’s
reform plans or holding a more controversial tone with the EU as Italy drafts its
yearly budget. We don’t currently forecast political risk premium emerging in BTPs
over the near term.
We still think that EUR/USD will test the 0.9540 September lows in the near term,
and extend a drop below that level by year-end.

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