EBC Markets Briefing | Euro muted as natural gas shock deepens

The euro is hovering near its lowest point of the year on Wednesday. This weakness is being driven by a twin crisis—a global energy shock and mounting political instability across Europe.

German Chancellor Friedrich Merz faces political pressure to scale back promised reforms following far-right state election surges, while France confronts high debt and gridlock ahead of the 2027 presidential race.

The euro's three-month risk reversal suffered their sharpest weekly drop since the start of the Iran war, signaling strong bearish sentiment, while European gas prices have hit the highest since late 2022.

This winter's jump in power costs underscores just how dependent the region remains on fossil fuels, and how quickly turmoil in global energy markets can still feed through to its economy.

Europe is now at the mercy of LNG imports, locked in a fierce international bidding war for vital energy cargoes. Solar energy provides far less power during winter, especially across northern Europe.

ECB officials have warned that the energy shock is spreading past fuel pumps into broader food inflation and electricity curves, threatening sticky inflation expectations.

EBC Financial Group analyst says the single currency was in the deeply oversold territory. Still the downside momentum did not appear easing, so a push below $1.1300 may be around the corner.

Asset Recap

As of market close on 29 September, among EBC major products, AXT shares led gains t after upbeat semiconductor demand news boosted investor optimism.

Citing a shortage of EV battery packs, Stellantis announced that operations will be suspended at three of its manufacturing facilities in France for a minimum of one week.

Oil prices tumbled on signs of recovering crude exports from the Middle East, although prices ‌headed for monthly gains on lingering concern about supply disruptions during the US-Israeli war on Iran.

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EBC Financial Group Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC Global Financial Collaboration or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.