(News Bulletin 247) – If we had to sum up the situation in one word this week, with the influx of news from the major central banks on both sides of the Atlantic: each of them is obliged to take very firm measures, even if it means jeopardizing the fragile return to post-Covid growth. But while they had momentarily reassured, the bellows fell quickly.
– For the Fed first of all, which yesterday ended a meeting of its Monetary Policy Committee (FOMC), which resulted in a tightening of the screw by 75 additional basis points on the Fed Funds, at a time when inflation reached 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.”
– Then for the ECB, which yesterday held 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”.
To make matters worse, everything was off target yesterday on the macro statistics front, whether for the dynamics of industrial production in the Euro Zone, and for the United States: retail sales (-0.3 % in monthly data), the manufacturing index Empire State which is swinging into negative territory, or import prices. To follow as a priority on the statistical agenda this Thursday, the manufacturing index Philly Fed and weekly US jobless claims at 2:30 p.m.
At midday on the foreign exchange market, the Euro was trading against $1.0410 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 1.0411 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 1.0509 USD.
The expected return of this Forex strategy is 160 pips and the risk of loss is 98 pips.
CHART IN DAILY DATA
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