(News Bulletin 247) – The Euro retreated against the Dollar on Tuesday, as risk appetite fell under the effect of the publication of record inflation in the Euro Zone. In the broadest product base (including food, energy, alcohol and tobacco), prices would have passed the 8% increase mark over a rolling year, according to the very first estimate (flash estimate) from EuroStat for the month just ending. This increase is stronger than expected, including when the most volatile products mentioned above (+3.8%) are excluded from the basket. The ECB will have to deal with a scenario of peak inflation which may not yet have been reached, while numerous signals, particularly in the real estate sector, suggest that the United States has already reached this peak.
“The fight against inflation is the absolute priority”, recalls Vincent Manuel, Indosuez Wealth Management. “One of the challenges, however, is to succeed in slowing down inflation without plunging the economy into recession and recreating too much unemployment. The likely risk now would be that some central banks expect more inflation than will actually happen, having been in inflation denial throughout 2021.”
The ECB had already started to toughen up on May 23. Its President, Ms. Lagarde, then clearly announced that an exit from the era of negative rates could take place “by the end of the third quarter”, i.e. at the end of September, in the face of galloping inflation which is forcing the institution to react. .
The question that now arises is that of the extent of the rise in rates for the Board of Governors in July.
To follow for the rest of the day the S&P CS index of real estate prices at 3:00 p.m., the Chicago PMI at 3:45 p.m., as well as the consumer confidence index (Conference Board) at 4:00 p.m.
KEY GRAPHIC ELEMENTS
the spot has just fallen below its 50-day moving average (in orange), a bottom trend line with a persistent bearish bias. A close of the daily candle below the lows of Monday’s candle would lend credence to continued clearing.
MEDIUM TERM FORECAST
In view of the key graphic factors that we have mentioned, our opinion is negative in the medium term on the Euro Dollar (EURUSD).
Our entry point is at 1.0706 USD. The price target of our bearish scenario is at 1.0454 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0788 USD.
The expected return of this Forex strategy is 252 pips and the risk of loss is 82 pips.
CHART IN DAILY DATA
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