(News Bulletin 247) – After falling sharply yesterday against a background of loss of appetite for risk after the ECB’s press conference, the Euro/Dollar stabilized this morning, with the prospect of a narrowing of the gap of “remuneration” between the two components of the spot. Yesterday the European Central Bank ended a key meeting of its Board of Governors. If the powerful Frankfurt Monetary Institution has not yet touched the cost of money itself, it has ratified the end of its asset buyback program on the markets. The institution’s president explicitly announced a 25 basis point (0.25 percentage point) increase in its interest rates in July, which will mark the first rate hike since May 2011, but also signaled that it could give a new tightening in September and if necessary even more strongly, a priori by 0.5 point (50 bps).
The new ECB inflation projections rise from 5.1% to 6.8% in 2022, food and energy included. “We would have preferred stronger monetary visibility at a time when inflationary pressures have intensified.” judge Ronan Blanc, analyst manager of Financière Arbevel. “If the rise in energy prices is largely responsible for the acceleration in prices in recent months, it is not the only reason. The spread is real, especially in services.” The analyst continues in an incisive tone: “To want to satisfy the greatest number, one ends up only making disappointed. It is all the difficulty of directing an institution which has of central only its head office.”
For Lombard Odier’s Bill Papadakis, the possibility of an even sharper rate hike in September raises the risk of a monetary policy error, whereas unlike the Fed, which benefits from a local economy where demand is booming, the ECB is facing a less robust economic situation than before the pandemic with much less significant wage growth than in the United States and greater vulnerability to the conflict in Ukraine. By raising its key rates to more than 2%, which corresponds to current expectations, the ECB would be practicing a truly restrictive monetary policy, which the zone’s economy would probably not be able to withstand.
A very important meeting also this Friday with the various consumer price indices across the Atlantic. Either new indications on rising prices, while the scenario of “a-peak-inflation-already-behind-us” loses credibility… In the widest product base (food and energy included), prices are expected to rise by 0.7% on a monthly basis, against +0.3% in April.
To follow also the preliminary data of the consumer confidence index (U-Mich) at 4:00 p.m. This is a valuable indication for the Fed as well, in an economy where traditionally and structurally most of the creation of national wealth is produced by domestic consumption.
At midday on the foreign exchange market, the Euro was trading against $1.0620 about.
KEY GRAPHIC ELEMENTS
The failure to contact the 50-day moving average (in orange) is now confirmed, and the bearish targets in the direction of $1.0454 and $1.0350 are locked. A close on the weekly lows would reinforce 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 1.0615 USD. The price target of our bearish scenario is at 1.0351 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0717 USD.
The expected return of this Forex strategy is 264 pips and the risk of loss is 102 pips.
CHART IN DAILY DATA
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