(News Bulletin 247) – The Euro continued its rebound against the Dollar, picking up pace with the equity markets, reassured both by the start of the quarterly ball without major surprises, and by the prospect of a continuity of the European supply of Russian natural gas. For the time being, currency traders, reassured by the remoteness of a scenario of a 100 bp increase in Fed Funds at the end of the month, are turning to Ms. Lagarde, President of the European Central Bank, who is completing a Board of Governors.
“For the first time in nine years, the ECB has the courage to raise all key interest rates by 25 basis points,” notes Ulrike Kastens, Europe economist for DWS, who believes that “the bank will include in its announcement the normalization of monetary policy, i.e. further interest rate measures later this year. This tightening could be all the more pronounced as the announced program to combat the so-called fragmentation The existence of fragmentation, i.e. an “unwarranted widening of yield spreads”, is the subject of much debate. However, the ECB considers that a such an instrument is necessary to avoid a crisis situation like in 2011 and 2012.”
The Italian political situation, since the resignation of Mario Draghi, refused by the President of the Republic, is closely watched on the foreign exchange market. The former President of the ECB, Prime Minister of the third economic power in the Euro Zone, is submitting to a vote of confidence in Parliament on Wednesday. “[La crise politique italienne] adds a new layer of risk to an already very difficult situation”, warns Frederick Ducrozet, Head of Macroeconomic Research at Pictet Wealth Management, in a note entitled “Italian political uncertainty and its consequences for the ECB”.
“But this crisis could also give the ECB the opportunity to clarify its strategy and make the TPM more acceptable to the hawks”, opposes M Ducrozet. “A self-inflicted political crisis in Italy is a textbook case of a situation where the ECB should not intervene. ECB members are likely to agree unanimously that a necessary condition for a state member is eligible for TPM will be that the government complies with the European reform agenda. In other words, the ECB could unveil a bold anti-fragmentation tool while putting the ball back in Italy’s court.”
To be followed in priority on the statistical agenda this Wednesday, the consumer confidence index in the Euro Zone at 4:00 p.m. and the sales of old homes in the United States at 4:00 p.m.
At midday on the foreign exchange market, the Euro was trading against $1.0245 about.
KEY GRAPHIC ELEMENTS
We maintain our short-term bullish idea, in high volatility, towards the 50-day moving average (in orange). Downside risks (trends background) will take shape as the spot melts on this trend curve, the role of resistance of which has been proven.
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 1.0242 USD. The price target of our bearish scenario is at 1.0483 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0174 USD.
The expected return of this Forex strategy is 241 pips and the risk of loss is 68 pips.
CHART IN DAILY DATA
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