Europe enters the struggle for survival

EUR/GBP

Key zone: 0.8700 - 0.8750

Buy: 0.8750 (on a pullback following a retest of 0.8730); target 0.8850-0.8900; StopLoss 0.8700

Sell: 0.8650 (against a strong negative fundamental backdrop); target 0.8450-0.8400; StopLoss 0.8700

Europe faces a stability check — both political and energy-related. The reason is low gas reserves due to the conflict in the Middle East. The key factor of uncertainty remains LNG supplies from Qatar: even if hostilities ease, the market has already taken a serious hit.

Preliminary estimates suggest that Iranian attacks may have reduced Qatar’s LNG export capacity by roughly 17% for a period of 3–5 years. This means that the energy problem for Europe is not short-term, but long-term and poorly predictable.

What is happening with inflation

Recent inflation data in the Eurozone came out in negative territory. On one hand, some components were weaker than expected, but the overall indicator still accelerated. Traders barely reacted to the statistics — market dynamics are now determined by geopolitics rather than macroeconomics.

March inflation growth was driven by external factors: Europe structurally depends on energy imports, primarily oil and gas, so the price acceleration due to the energy shock looks quite expected.

The European Commission does not expect a rapid market recovery. Despite supply shortages, Asian buyers willing to pay significantly higher premiums are already intercepting some LNG shipments originally intended for Europe.

This quickly reflected in the statistics: LNG imports to Western Europe in March increased only 3.5% year-on-year. For the EU, this trend poses a serious threat, as filling gas storage without stable supplies will be extremely difficult.

Brussels is effectively preparing for a prolonged energy crisis. Measures under discussion include:

• Limiting network tariffs;
• Reducing electricity taxes;
• Possible use of stricter anti-crisis mechanisms.

The energy factor also remains the main risk for ECB forecasts. The current situation allows the regulator to adopt a wait-and-see approach and not rush to raise rates in the near term. This temporary buffer provides time to assess whether the energy shock will translate into wage growth and inflation expectations.

The UK is also attempting to respond to rising prices, but so far without noticeable effect. Prime Minister Keir Starmer emphasized support measures for the population amid rising living costs, but the market expected more extensive solutions.

Specifically, the government reminded of previously announced measures:

• Minimum wage increase;
• Price caps on medicines;
• Temporary reduction of electricity bills until July.

Starmer also held meetings with business leaders and emergency consultations with government members and Bank of England Governor Andrew Bailey. However, investors facing uncertainty and limited support measures preferred to shift to safer assets.

And what is the result?

In the short term, the situation has already hit the British pound, which weakened significantly against the US dollar. The EUR/GBP cross-rate was also forced to react. The market currently requires technical correction, but there are still no strong signals of a reversal of the current trend. The main risk remains the same: if the energy crisis in Europe persists, pressure on the region’s currencies is likely to increase.

So we act wisely and avoid unnecessary risks.

Profits to y’all!