EUR/USD: The Fed is haunted by inflation

(News Bulletin 247) – After the ECB last week, it’s the Fed’s turn to attract the attention of forex traders, who want to know how J Powell intends to get out of a complex equation: that of fighting against chronic inflation galloping, without triggering the onset of recession, even though the scenario of an entry into a wage/price loop is not ruled out.

“The Fed Chairman needs to maintain an aggressive rhetoric, especially after last week’s inflation numbers. He should reaffirm that the Fed’s number one priority is to slow inflation, and that it will act in accordingly, and more vigorously if necessary”, summarize the analysts of La Française.

As a reminder, inflation (including food and energy) reached 8.6% monthly in the United States.

In a “preview” comment entitled “Fed is haunted by high inflation”, Thomas Costerg, Senior US Economist, of Pictet Wealth Management, sheds the following light: “The Fed had previously communicated on two increases of 0.50% at the June meetings and July, but persistent press leaks of a 0.75% hike put the latter possibility squarely on the table.The Fed is panicking after May’s inflation report showed an 8.6% annual price increase. The famous ‘peak’ of inflation is long overdue.”

In statistics on Tuesday, the even weaker than expected score of the ZEW confidence index in the German economy weighed on risk appetite. The index of the same name came out at -28.0 this month. “The economy remains exposed to many risks, such as the effects of the sanctions against Russia, the unclear pandemic situation in China and the gradual change of course in monetary policy. So, although expectations have improved, they are still in negative territory,” commented ZEW President Professor Achim Wambach. RAS on the side of the dynamics of producer prices which have not moved away from the target.

To follow as a priority on the statistical agenda this Wednesday, across the Atlantic, retail sales at 2:30 p.m., the manufacturing index Empire State at 2:30 p.m., NAHB Residential Property Market Index at 4:00 p.m., Crude Inventories at 4:00 p.m. The monetary appointments to tick are naturally the outcome of the FOMC at 8:00 p.m. and the Fed press conference at 8:30 p.m. Also to follow is a speech by Mrs C Lagarde at 4:20 p.m. at the London School of Economics.

At midday on the foreign exchange market, the Euro was trading against $1.0480 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 1.0485 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 1.0561 USD.

The expected return of this Forex strategy is 234 pips and the risk of loss is 76 pips.

CHART IN DAILY DATA

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