Georgette Boele at ABN AMRO highlights that lower Oil and gas prices should, in principle, weigh on the Dollar and support the Euro, but EUR/USD has shown only a limited reaction so far. She notes that extreme positioning in the Japanese Yen and related intervention risks are spilling over into EUR/JPY, indirectly pressuring EUR/USD, though joint intervention could ultimately prove positive for the pair.

Energy dynamics and intervention risks shape outlook

"First, higher oil and gas prices had supported the US dollar because the US is an energy exporter. At the same time, they weighed on the euro because the eurozone is an energy importer. In principle, lower energy prices should therefore lead to some dollar weakness and euro recovery."

"We expected this to happen, but so far, the reaction has been limited. The fall in oil prices seems partly driven by dollar strength, as oil prices have decreased less in terms of most other currencies, such as the euro and particularly the Yen."

"Investors also appear to be reducing some yen shorts against the euro, which has put downward pressure on EUR/JPY and, in turn, on EUR/USD. Overall, we think joint intervention would likely push USD/JPY lower faster than EUR/JPY, which would be positive for EUR/USD."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)