(News Bulletin 247) – The atmosphere remained nervous on the foreign exchange market, with the approach of a major meeting, namely the outcome of the Governing Council of the ECB. Not that the market expects an increase in key rates, but the opportunity is sharp to know more about the magnitude of the rise in July (25 or 50 basis points), and the pace of subsequent increases . It is therefore the tone adopted by the institution that will be judged (voluntary, firm or aggressive). In addition, the powerful Frankfurt Monetary Institution will communicate its inflation forecasts for 2023. Will the entry into a high altitude plateau for prices be confirmed by the ECB?
For Frederik Ducrozet, Head of Macroeconomic Research, and Nadia Gharbi, Senior Economist, of Pictet Wealth Management, “the scenario of a 50 basis point hike will remain on the table. As we expect the ECB to opt For the safer option of a 25 basis point hike in July, recent inflation data has raised the likelihood of a move by 50 basis points. Ms. Lagarde did not explicitly rule out this option, neither did Philip Lane, although the chief economist backed a “gradual” normalization process in the form of a “benchmark pace” of 25 basis point quarterly hikes.”
For César Perez Ruiz, Head of Investments and CIO at Pictet Wealth Management, however, it is difficult to decide: “We are forecasting a 25 bp increase in July, knowing that a 50 bp increase in September seems more likely. In order to To counter a major risk linked to its monetary normalization cycle, the ECB could introduce a mechanism aimed at limiting the widening of peripheral bond spreads.
This rise in inflation should be viewed against the increasingly less optimistic outlook for global growth. The OECD has revised its forecasts sharply downwards. “Growth is expected to be significantly weaker than expected in most economies. Many of the hardest hit countries are in Europe, which is very war-prone due to its energy imports and the influx of of refugees.” Result: the OECD now forecasts a slowdown in global growth, around 3% in 2022 and a maintenance of this rate in 2023.
The pressure is naturally strong on the so-called risky financial assets, of which the real securities and the single currency are part, the exception remaining at this stage the gross.
At midday the Euro was traded on the foreign exchange market against $1.0715 about.
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 daily candle close well below the low shadow of Tuesday’s 05/31 candle would further flesh out the bearish scenario. The opinion therefore remains bearish but without a clear sign at this stage of a potential increase in volatility. The stop is clearly identified, just above the weekly highs (week 22) reached on Monday 05/30.
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 1.0716 USD. The price target of our bearish scenario is at 1.0455 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 261 pips and the risk of loss is 72 pips.
CHART IN DAILY DATA
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