Energy Crisis Intensifies, European Credit Markets Stuck in Crisis

Summary:

LGIM European investment grade portfolio manager Luan Vu said, "European companies are more vulnerable to the energy crisis than U.S. credit markets and the risk of recession is higher in Europe than in the United States. Spreads in the European market reflect higher risk than their U.S. counterparts." It should be noted that the U.S. credit market conditions are also far from optimistic. Junk bond yields had more than doubled this year, while bond and loan issuance fell by 77% and 55% or more, respectively, compared with the same period last year. Meanwhile, Deutsche Bank released a report on September 6, showing that the bank's balance sheet still holds about $73 billion in underwriting financing. At the same time, Kevin Wolfson, portfolio manager for leveraged loans at Pinebridge Investments, said the fundamentals of U.S. companies have been strong despite some unexpectedly negative results emerging from the second quarter. In contrast, as Russia cuts or even stops natural gas exports, European energy prices have soared, pushing up corporate input costs, weakening earnings prospects, and raising recession fears.

SELL EURUSD

Close Time

CLOSED

0.99863

Entry Price

0.99015

1.00132

1.12004 -0.00148 -0.13%

26.9

Pips

Loss

0.99015

1.00132

Exit Price

0.99863

Entry Price

1.00132

I. Fundamentals

It should be noted that the U.S. credit market conditions are also far from optimistic. Junk bond yields had more than doubled this year, while bond and loan issuance fell by 77% and 55% or more, respectively, compared with the same period last year. Meanwhile, Deutsche Bank released a report on September 6, showing that the bank's balance sheet still holds about $73 billion in underwriting financing.

However, bankers saw enough investor demand to begin testing market conditions. This led them to launch a leveraged loan sale of about $4.5 billion on Wednesday to help support the Citrix acquisition.

Lauren Basmajian, head of U.S. loans & structured credit at Carlyle Group, said the U.S. leveraged loan market has been "orderly and open" despite its relatively small size. She noted that this is partly due to the continued demand from mortgage bond management companies.

In addition, the U.S. junk bond market has reopened with a $1.2 billion bank sale of NortonLifeLock in two parts. The five-year yield is expected to be about 7 %, according to people familiar with the matter.

At the same time, Kevin Wolfson, portfolio manager for leveraged loans at Pinebridge Investments, said the fundamentals of U.S. companies have been strong despite some unexpectedly negative results emerging from the second quarter.

In contrast, as Russia cuts or even stops natural gas exports, European energy prices have soared, pushing up corporate input costs, weakening earnings prospects, and raising recession fears.

II. Technical Analysis

2.1 EURUSD Daily Chart

EURUSD: Energy Crisis Intensifies, European Credit Markets Stuck in Crisis_1

The key resistance levels above are 1.0145 and 1.00011.

2.2 EURUSD 4H Chart

EURUSD: Energy Crisis Intensifies, European Credit Markets Stuck in Crisis_2

The key resistance levels above are 1.00011 and 0.99875.

2.3 EURUSD 1H Chart

EURUSD: Energy Crisis Intensifies, European Credit Markets Stuck in Crisis_3

The lower boundary of the contracting triangle is breaking below the levels of 0.99775 and 0.99480.

Trading Recommendations

Go short on EURUSD at highs.

Entry price: 0.99630

Take profit: 0.99015

Stop loss: 1.00132

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Energy Crisis Intensifies, European Credit Markets Stuck in Crisis

I. Fundamentals

II. Technical Analysis

Trading Recommendations

Risk Disclosure