(News Bulletin 247) – If the buying and selling forces were balanced on the Euro / Dollar currency pair on Monday, a holiday in the United States and without benchmarks from Wall Street, the spot, one of the reference barometer of risk appetite, remains rooted in a powerfully bearish background momentum.
Currency traders remain tense with rising prices. Inflation in the Euro Zone came out at +8.6% at an annualized rate in the Euro Zone, in the very first estimates on Friday for the month of June, against a target of +8.5%. “The markets were somewhat reassured by the fall in underlying inflation from 3.8 to 3.7% [hors alimentation, énergie, alcool et tabac]. But this drop comes solely from fiscal measures in Germany, and inflationary pressures remain fundamentally on the upside” nuance Xavier CHAPARD LBPAM.
“This adds pressure on the ECB to start raising rates for the first time in over a decade while ensuring that sovereign debt tensions do not become systemic. The announcements from the July 21 meeting will be key. on these two subjects, and the minutes of the June meeting published this week will be scrutinized to see if they offer indications on the progress of the reflections within the Board of Governors.
Remember that traders also had to contend on Friday with the final data of the PMI index (IHS Markit) for the month of June, in the Euro Zone, published at 52.1, a very slight increase compared to the first estimates. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence provided the following additional insights into the raw data: and lower-than-expected sales suggesting that an inventory correction will act as an additional drag on the manufacturing sector.Supply of many important inputs also remains constrained and concerns over energy and food supplies have added to jitters over in the future.”
Disappointment across the Atlantic on Friday with the ISM manufacturing index, which fell to 53.0, missing expectations and heading more towards the 50-point threshold, which separates a contraction from an expansion in the sector in question.
This Monday the statistical program concerns Europe mainly because of the Independence Day celebrations (Independence Day, 4th of July). The Sentix index of investor confidence in the Euro Zone deteriorated further, from -15.8 to -26.4, missing expectations. And the producer price index in the Euro Zone came out at +0.7% in May, on a monthly basis.
At midday on the foreign exchange market, the Euro was trading against $1.0440 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. A new contact with the aforementioned trendline would further strengthen the quality of the entry point. This is exactly what happened last Wednesday, on a convergence zone of two remarkable moving averages. Next test: $1.0350, then $1.0250. Below, the perfect parity (1 Dollar per Euro), would act like a magnet.
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 1.0450 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 1.0568 USD.
The expected return of this Forex strategy is 449 pips and the risk of loss is 118 pips.
CHART IN DAILY DATA
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