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Something That We Have Been Waiting For Just Happened, And It Is A Really Bad Sign…
Francesco Abbruzzino, The Uncensored Report, LLC
There has been a lot of talk recently about “the death of the dollar”, but the truth is that the euro is in far bigger trouble. Inflation in the eurozone has risen to truly frightening levels, and the war in Ukraine threatens to plunge the major economies of Europe into a very deep recession. Russia holds the key, because if Russia completely cuts off the flow of natural gas to Europe it really will cause an unprecedented economic nightmare. Even now, energy prices in Europe have already soared to absolutely insane levels, and the Russians could make things much, much worse with a single decision. The Europeans should have never allowed themselves to become so dependent on Russian energy, and now they find themselves stuck between a rock and a hard place.
So with everything that has been going on, it shouldn’t be any surprise that the euro has been steadily falling.
In fact, on Tuesday the euro reached parity with the dollar for the very first time since 2002…
The euro hit parity with the U.S. dollar on Tuesday for the first time in 20 years, meaning that the currencies have the same worth.
The euro fell to $0.9998 against the dollar, it’s lowest level since December 2002, as the euro zone’s energy supply crisis and economic woes continue to depress the common currency.
For years, I have been warning that the euro would eventually fall so low that it would be at parity with the dollar, and now that day has arrived.
And I have also been warning that such an event would be a really bad sign for Europe, because I always felt that hitting parity with the dollar would be an indication that a collapse of the European economy had begun.
In the short-term, everyone is going to be watching for what Russia does next. On Monday, the Nord Stream 1 pipeline was shut down for a regularly scheduled 10 day period of maintenance…
Fears of a recession have grown in recent weeks due to rising uncertainty over the bloc’s energy supply, with Russia threatening to further reduce gas flows to Germany and the broader continent.
Russia temporarily suspended gas deliveries via the Nord Stream 1 pipeline on Monday for annual summer maintenance works. The pipeline is Europe’s single biggest piece of gas import infrastructure, carrying around 55 billion cubic meters of gas per year from Russia to Germany via the Baltic Sea.
Many analysts in the western world are greatly concerned about what will happen if the Russians don’t turn the gas back on when the 10 day maintenance period is over.
If it doesn’t get turned back on, we are being warned that Europe could actually be facing a “doomsday scenario”…
As such, DB’s Jim Reid said that July 22, the day gas is supposed to come back online, could be the most important day of the year: “while we all spend most of our market time thinking about the Fed and a recession, I suspect what happens to Russian gas in H2 is potentially an even bigger story. Of course by July 22nd parts may have be found and the supply might start to normalize. Anyone who tells you they know what is going to happen here is guessing but as minimum it should be a huge focal point for everyone in markets.”
Fast forward to today when, one day after the start of the scheduled 10-day shutdown period which has already sent flows through to NS 1 pipeline to basically zero…
… and the market is now focusing on the worst case scenario: what happens if Russia cuts off all gas on July 22, the day even Bloomberg has now dubbed Europe’s “doomsday scenario.”
So let’s watch and see what happens on July 22nd.
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