(News Bulletin 247) – Still on a fundamental downward bias, the Euro nevertheless marked a pause against the Dollar, with the buying and selling forces momentarily balancing out. The single currency, the benchmark barometer of risk appetite on the markets, continued to suffer from the risks of the main economic poles on both sides of the Atlantic entering recession, and the Dollar failing to to accentuate its gains after Fed Minutes, published last night, which left open the door to a 50 basis point hike in Fed Funds at the end of the month, an option as likely as the 75 basis points on which the market was based.
As a reminder, following the last meeting of the Monetary Policy Committee, the Fed Funds were raised by 75 basis points, a scenario which had been (very partially) digested by the market. “A further 75bp tightening is even still possible in July given the dynamics of medium/long-term inflation expectations”, for Christophe MOREL, Groupama AM, who sees the cost of money at 3.50% at the end of the year.
For their part, [les stratégistes d’ECOFI] forecast[ient] that the Fed will hike rates by 75 basis points (bps) in July, 50 bps in September and 25 bps in November and December. We expect a Fed funds rate of 3.25% / 3.5%, close to the peak of the tightening cycle.” Based on the “three shocks [qui] strike the world: the war in Ukraine [qui] pushes Europe into recession; lockdowns in china [qui] lead to a significant drop in activity; monetary and fiscal tightening in the United States [qui] beginning to weigh on the real estate market, even if prices remain high.
The preparation, according to information from the Bloomberg agency, of new fiscal stimulus measures capable of accelerating the construction of infrastructure in China, also explains this pause in the hemorrhage of the single currency, which has had to face more early in the week to the publication of activity indicators (PMI Composite) which were not very encouraging.
To follow as a priority on the statistical agenda this Thursday, the American trade balance and the weekly registrations for unemployment benefits at 2:30 p.m.
At midday on the foreign exchange market, the Euro was trading against $1.0195 about.
KEY GRAPHIC ELEMENTS
the spot is breaking out of a fragile neckline of a chartist pattern, which sends a clear bearish message. Our immediate objective is to achieve, in growing volatility, the perfect parity, namely one euro for one dollar. If necessary and in the long term, a powerful rebound could take shape.
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 1.0190 USD. The price target of our bearish scenario is at 1.0001 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0278 USD.
The expected return of this Forex strategy is 189 pips and the risk of loss is 88 pips.
CHART IN DAILY DATA
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