EURUSD analysis: Gas price differences matter more than ever

EUR/USD fell below parity once again todayEURUSD, but this time the reason is more complex than a divergence in Fed-ECB interest rate policy.

Recent price differences for natural gas between Europe and the US have become a key factor for the euro's decline, even more than 2-year Germany-US yield differentials.

As Dutch TTF prices reached new record highs in the wake of the most recent disruptions to Nord Stream, the US Henry Hub natural gas discount to the European Dutch TTF widened to a record 63/MMBtu (THD1!). European gas prices are currently 7 times higher than US gas prices.

In addition to maintaining higher inflation for longer, Europe's skyrocketing gas prices harm the relative competitiveness of European businesses and household spending power in comparison to the United States.. The Bundesbank says that a recession in Germany is now much more likely and Germany's inflation could reach over 10%, which would be the highest since World War II.

If the price discount of the US Henry Hub to the Dutch TTF (THD1!) were to increase further, this could create further greater downward pressure on the EUR/USD pair.

Idea written by Piero Cingari, forex and commodity analyst at Capital.com