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FX.co ★ Trading plan for EUR/USD and GBP/USD on May 31, 2022

Trading plan for EUR/USD and GBP/USD on May 31, 2022

For almost a whole month, the European Union has been trying to adopt the sixth package of sanctions against Russia. The main stumbling block was the issue of the embargo on Russian energy supplies. And yesterday, almost at night, that is, when all the main stock exchanges were closed, the European Commission finally announced a decision on sanctions. Brussels has imposed a partial embargo on Russian oil supplies. It is partial only because the oil pipeline supplies have been withdrawn from the ban. According to Ursula von der Leyen, almost two-thirds of Russian oil exports to Europe have been banned. At the same time, Germany and Poland announced a complete rejection of Russian oil by the end of this year, so oil exports from Russia to Europe should be reduced by 90%.

There are still no answers to two fundamentally important questions. First, there is no specific time frame for the ban to take effect. According to unofficial data, the embargo will come into force within six months, that is, closer to the end of this year. Second, how will Europe replace the falling volumes of energy carriers? And the second question is the main one.

The European Commission, of course, announced plans to increase the financing of renewable energy sources. But it is physically impossible to replace oil with renewable energy sources in six months, but also several years. Moreover, on average, only a third of the oil is used for energy production in one form or another. Most of it goes to petrochemicals. Even in the food industry, refined petroleum products are used. And Europe has not been able to agree on an increase in supplies from other countries. In other words, this decision threatens the existence of entire sectors of the European economy.

The only thing that saved the single European currency from an imminent collapse was the time of the announcement of the decision on sanctions. But the market will inevitably play back this news for a long time. Moreover, it is the news about the volume of supplies from other countries that will be decisive. After all, Europe is now going to run around the world like crazy and try to negotiate new supplies. There is no other way out. But over the past three months, all such attempts have been unsuccessful. And it is quite obvious that the single European currency will pull the pound along with it. In principle, like all other currencies included in the dollar index.

Preliminary data on inflation in the euro area will become an additional factor of pressure on the single European currency. After all, the growth rate of consumer prices may accelerate from 7.4% to 7.7%. That is, inflationary pressure on the European economy is only increasing. While the European Central Bank is still only considering the possibility of raising interest rates. That is, simply put, it continues to be inactive.

Inflation (Europe):

Trading plan for EUR/USD and GBP/USD on May 31, 2022

The EURUSD currency pair reached the resistance level of 1.0800 during an intensive upward movement. This led to a reduction in the volume of long positions and, as a result, a rebound in the price. In this case, this may lead to a local change of direction, where the European currency will be under pressure from sellers.

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Trading plan for EUR/USD and GBP/USD on May 31, 2022

The GBPUSD currency pair slowed down the correction course around the value of 1.2650, which led to stagnation followed by a pullback. It can be assumed that the overbought pound sterling in two weeks may well change direction, signaling the completion of the correction.

Trading plan for EUR/USD and GBP/USD on May 31, 2022

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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