(News Bulletin 247) – The Euro/Dollar remained under strong pressure in the last part of a week that was once again very bumpy for so-called “at risk” assets. The confidence barometer macroeconomic data published very recently (business climate in Germany, US consumer confidence) weigh heavily, in a climate overshadowed by the prospect of persistently high inflation. The latest figures published yesterday morning by INSEE confirm this for France, with a CPI at +0.7% from one month to the next. Round like yesterday the PCE price index (Personal Consumption Expenditures Index), the Fed’s favorite measure in its assessment of price dynamics, which came out at +0.3% month-on-month. RAS moreover, and to be complete on Thursday’s battery of figures, for new weekly registrations for unemployment benefits, at 231,000 new units, came out very close to expectations.
In the immediate future this Friday, traders are dealing with the final data of the PMI index (IHS Markit) for the month of June, in the Euro Zone, published this morning 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:
“The slowdown looks set to accelerate for the coming months. Commodity inventories and unsold stock are rising on lower-than-expected production and sales suggesting that an inventory correction will act as an additional drag on the market. manufacturing sector. The supply of many important inputs also remains constrained and concerns over energy and food supplies have added to nervousness about the future.”
To be followed across the Atlantic this afternoon is an equivalent indicator, the ISM manufacturing PMI. A key indicator which “should not yet settle at 50 (it was at 56.1 in May). However, the business climate is taking this direction slowly but surely. Above all, this slowdown in activity must be reflected in the publications results which should surprise on the downside from the second half of 2022”, warns Christophe Morel, of Groupama AM, who notes “the strong rebuilding of stocks in the American industry”, now constituting a “vulnerability factor”, just like “the latest publications of regional business surveys (NY, Philadelphia, Kansas)”.
As a reminder for this type of survey, the threshold of 50 separates by construction a contraction from an expansion of the sector considered (services, industry, or composite). To follow therefore for the United States the ISM manufacturing at 3:45 p.m.
Also to follow with the greatest attention what constitutes the statistical high point of the week, namely the very first estimates of inflation in the sense of the CPI, for the month which has just ended.
At midday on the foreign exchange market, the Euro was trading against $1.0460 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 1.0434 USD. The price target of our bearish scenario is at 1.0001 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0607 USD.
The expected return of this Forex strategy is 433 pips and the risk of loss is 173 pips.
CHART IN DAILY DATA
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