(News Bulletin 247) – Volatility remains intense on the Euro/Dollar currency pair, still on a fundamental downward bias, in extremely extensive news this week on the front of the monetary policy decisions of the world’s major central banks.
As a reminder, the Fed ended a meeting of its Monetary Policy Committee (FOMC) on Wednesday, which resulted in a tightening of the screws by 75 additional basis points on the Fed Funds, at a time when inflation reached the 8.6% (annualized data, food and energy included). “There is a major disagreement between the members of the FOMC concerning the pace of appreciation of rates” warns William Gerlach, Director France of iBanFirst. “The lowest dot plot for 2024 is at 2% while the highest dot plot is at 4%. This is unprecedented in the history of the FOMC. This means that there is a clear lack of visibility regarding the direction of the economy (both inflation and growth) in the coming years.”
More surprisingly, the ECB held this week an extraordinary, emergency Board of Governors – even if this term is not part of its title – to try to contain the fire. Ulrike Kastens, Economist Europe, DWS, notes that “increasing tension from widening spreads in eurozone bond markets is having an impact: the European Central Bank is responding with a more flexible reinvestment policy under the PEPP. But above all, it announces a new “anti-fragmentation” instrument to fight against a permanent and unjustified broadening of yield rates. Although the design of this tool is still unclear, the announcement of its implementation should relieve the markets somewhat.”
“Overall, this should also give the ECB room to raise policy rates faster and more aggressively, with spread widening limited to some extent. The ECB is likely to announce this new tool as early as July, when it could raise key rates for the first time since 2011.”
Franck Dixmier, director of bond management for the insurance group Allianz, nevertheless stresses that this press release does not in fact bring anything new compared to what was communicated at the meeting last week. “Handicapped in its ability to raise rates without being hampered by the negative impact of tighter monetary conditions on countries with the most weakened public finances (primarily Italy), the ECB seems to be losing its bearings” , notes the manager. “Much ado about nothing, and a credibility that does not grow out of it”.
In terms of statistics, the week is decidedly complicated to say the least. All the major indicators once again came out below their respective targets on Thursday, whether for the manufacturing index Philly Fed (-3.3), new weekly registrations for unemployment benefits (+229K) or sales of housing and building permits. The only relative advantage that investors can see in this bad series of statistics this week is the hope of a less heavy hand from the Fed at the next FOMC. Pigs already have the date of July 28th.
In the immediate future, no deviation from the consensus is to be reported concerning the consumer price indices in the Euro Zone, in final data for the month of May (+8.1% over one year food, energy, alcohol and tobacco included). Forex traders will be watching the federal industry report at 3:30 p.m. this afternoon.
At midday on the foreign exchange market, the Euro was trading against $1.0520 about.
KEY GRAPHIC ELEMENTS
The failure at the contact of the 50-day moving average (in orange) is now recorded, and the bearish targets in the direction of $1.0350 and $1.0250 are locked. A close at the weekly lows in week 23 reinforced the bearish message.
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 1.0520 USD. The price target of our bearish scenario is at 1.0251 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0641 USD.
The expected return of this Forex strategy is 269 pips and the risk of loss is 121 pips.
CHART IN DAILY DATA
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