London (CNN Business)If you're an American visiting Italy, Greece, or Spain this summer after a trip is interrupted during a pandemic I'm lucky. : Meals, hotels and tours are more affordable in dollars than they were 20 years ago.
Situation: The euro has fallen to about $ 1.03, plunging more than 8% against the US dollar so far. It is currently trading at the lowest level since late 2002.
Most analysts do not think they have bottomed out yet. There are speculations that it could even reach a parity where one dollar can be exchanged for one euro.
"The euro is bearish until the headline that global growth will recover significantly," Nomura strategist Jordan Rochester told me. He believes the euro will reach the same level by the end of August.
Breakdown: What's good for American tourists is tough for European companies who need to buy energy, raw materials, and parts for dollars. Rising import costs could continue to push prices up in 19 euro-using countries, with annual inflation jumping to a record high of 8.6% in June.
What triggered the sale of the euro, the second most used currency in the world? Analysts point out several factors.
Europe's natural gas prices are at their highest since March. Russia is reducing gas flow to Europe and the major Nord Stream pipelines are about to undergo maintenance. Norwegian energy workers have just begun strikes, threatening further supply constraints.
"We expect the eurozone winter crisis to be imminent and energy prices to remain very high," Rochester said.
The euro tends to perform poorly as risk aspirations among investors recede.
Another issue is trade. Germany reported a rare monthly trade deficit. This is a sign that high energy prices are weighing heavily on manufacturers in Europe's largest exporters. After that, the euro will need to depreciate in order to make block exports more competitive.
The European Central Bank plans to start raising interest rates this month, but Europe is also lagging behind the United States in raising interest rates. This means that investors are more likely to deposit money in the United States, where they can get better returns.
Clients are "very interested in everything in Europe," said Kit Jacks, strategist at Societe Generale, Tuesday. "Germany's trade data yesterday has fallen sharply, and there is a growing sense that the current account surplus is being hit by energy prices. Concerns about fragmentation and the global economy turning south. About the euro, which is difficult to make even a little brighter. ”
Bezos vs. White House vs. Inflation
Decades-High inflation is the price It is drawing the attention of the White House in an attempt to assure Americans that they are taking the rise in the market seriously. It has increased the pointing to Corporate America, which the Biden administration says is exacerbating the problem.
"My message to companies that run gas stations and price with pumps is simple. This is a time of war and global crisis," President Joe Biden said on a holiday. Tweeted on the weekend. "Lower the price you're charging for your pump to reflect the cost you're paying for your product, and do it now."
It's becoming more and more straightforward on Twitter. Triggered a protest from its founder Jeff Bezos.
"It hurts. Inflation is a very important issue for the White House to continue to say this," he tweeted in response. "It's either a straight turn or a deep misunderstanding of the basic market dynamics."
Veteran venture capitalist Bill Gurley also jumped into the fight. He pointed out "economic research and understanding over the last 300 years" and said he had "completely" agreed with Bezos.
The White House has pushed back criticism.
"Oil prices have fallen by about $ 15 in the past month, but pump prices have barely fallen. This is not" basic market dynamics. " It's a market that is losing American consumers. " "But you think oil and gas companies that are using market power to make record profits at the expense of the people of the United States are the way our economy is supposed to work. I don't think it's surprising. ”
Confirmation of numbers: US oil prices have fallen in the past month as concerns about a recession have come to the fore. The benchmark West Texas Intermediate futures last traded at around $ 108.50 a barrel, compared to more than $ 118.50 a month ago. That $ 10 difference is less than the number of White Houses.
Still, it's true that the pump wasn't overwhelmingly relieved. The average price of a gallon of regular gasoline is $ 4.80. A month ago, it was $ 4.85, compared to $ 3.13 a year ago.
It is the result of price cuts. Probably in some cases. However, the biggest factor in current fuel prices is the increasing demand and supply limits, especially for gas and diesel. This is the result of a pandemic, the war in Ukraine, and the turmoil of the arrival of the summer driving season in the Northern Hemisphere. Lack of investment in refining capacity also exacerbates the problem.
$ 380 of oil. JPMorgan sees a scenario where it is possible
Immediately after Russia invaded Ukraine, global oil prices soared above $ 139 a barrel. They were finally trading for under $ 113. However, JPMorgan Chase strategists believe that the card may contain $ 380 of "Stratosphere" crude, and recent profits are inferior in comparison.
Retreat: Last week, G7 leaders agreed to hash plans to limit Russia's oil prices. This will allow the country's discount barrels to hit the market, but will reduce Moscow's earnings.
Details have not yet been finalized. However, in theory, customers such as China and India would agree to pay only $ 50 to $ 60 per barrel to insure cargo from Western companies.
It will curb the Kremlin's income, which estimates that the price of export barrels will exceed $ 80 by the end of 2022.
However, JP Morgan's team, including strategist Natasha Kaneva, can retaliate by deliberately curbing oil production, as Russia does with natural gas. .. It will send the price through the roof. Banks predict that if production is reduced by 3 million barrels per day, prices could jump to $ 190 per barrel. In the "worst case scenario" of a 5 million barrel reduction per day, the price could reach $ 380.
"If geopolitical situations are needed, in our view it seems that export cuts are more likely to be used as a leverage / policy tool," Kaneva and his colleagues. Wrote this month.
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May US factory orders will be posted at 10am ET.
Coming tomorrow: Investors will go through the minutes from the June meeting of the Federal Reserve Board.
