ECB warns against the negative impact of gas supply disruption on the Eurozone’s economy 

The euro bounced strongly on Tuesday, recovering from local lows seen below 1.1300 at the start of the week. The EURUSD pair extended gains to the 1.1350 intermediate resistance that has been capping further upside so far during the European trading hours. In the process, the common currency exceeded the 20-DMA while the daily RSI reversed north, adding to a more upbeat technical picture.

The euro switched into recovery mode amid the overall improvement in risk sentiment after Russia said that a number of drills have finished, and troops are expected to return to bases. Furthermore, some units of western and southern military districts have already started returning to bases. Investor sentiment received a strong boost from these headlines, with stocks turning positive across the markets.

Should risk tone keep improving in the near term, the selling pressure surrounding the safe-haven dollar can push the euro north, towards the 1.1400 figure. However, in a wider picture, the bullish potential looks limited as the Fed’s aggressive tightening would continue to support the greenback both in the short- and medium-term. 

Elsewhere, in its economic bulletin, the European Central Bank warned against the negative impact of any gas supply disruption on the Eurozone’s economic growth. In particular, the central bank expects high energy prices would reduce Eurozone economic output by around 0.2% this year. 

In the immediate term, EURUSD may need an extra impetus to overcome the mentioned barrier on the way towards the 1.1400 figure. Furthermore, traders could proceed to profit-taking and push the euro lower should dollar demand reemerge anytime soon. On the downside, the nearest support is now represented by the 20-DMA, currently at 1.1325, followed by the 1.1300 level.   


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