(News Bulletin 247) – The Euro remained in difficulty against the Dollar, in the immediate vicinity of perfect parity, while the latest inflation figures published yesterday are in line with the firm tone of the latest report of the Board of Governors of the European Central Bank.
The consumer price index in the monetary union accelerated beyond expectations, to +9.1% at an annualized rate. Excluding food, energy, alcohol and tobacco (volatile elements), prices rose by 4.3%, against 4.1% expected, causing pressure on all risky asset classes, family including the Euro is a prominent representative…
Unsurprisingly, it is energy that directly and indirectly pulls prices up. “As for the main components of inflation in the Eurozone, energy is expected to experience the highest annual rate in August (38.3%, compared to 39.6% in July), followed by food , alcohol & tobacco (10.6%, compared to 9.8% in July), industrial goods excluding energy (5.0%, compared to 4.5% in July) and services (3.8%, compared to 3.7% in July)”, details EuroStat in its press release.
“The Central Banks therefore have no other alternative than to act vigorously to try to stem this new spiral, even if the objective of 2% inflation in the short term seems in any case illusory” slice Emmanuel Auboyneau (Amplegest). “Rate hikes will continue at a sustained pace, even if it means impacting economic growth. This is all the more likely given that, to date, the foundation for growth remains solid in the eyes of these institutions, and that global activity benefits from several effective drivers.”
However, the European gas crisis remains a thorn, and not the least, in the shoe of recovery. The Russian gas giant Gazprom has as planned stopped supplies via the Nord Stream 1 gas pipeline for maintenance reasons. The interruption must last three days. “While Europe is keen to stress that its storage levels are well ahead of schedule, failure to resume flows on Saturday would be a blow ahead of what is already shaping up to be a jittery and costly winter,” warns Craig Erlam of Oanda.
Yesterday across the Atlantic, eyes turned to the ADP survey, a traditional preview before tomorrow’s publication of the monthly federal report. The private HR firm highlighted 132,000 job creations in the private sector (excluding agriculture), completely missing the target.
To follow this afternoon the ISM manufacturing barometer and the weekly registrations for unemployment benefits. On this side of the Atlantic, currency traders have just taken note of a battery of industrial PMI indicators, in line with expectations for the whole of the Euro Zone, slightly disappointing for Germany. The indicator is nevertheless below the 50 point mark, at 49.6, which marks a contraction in secondary activity.
“Weak demand and company destocking operations point to further declines in production in the coming months. signals the largest contraction since 2009, apart from the spikes recorded during the months of lockdowns imposed at the start of the health crisis,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
At midday on the foreign exchange market, the Euro was trading against $1 about.
KEY GRAPHIC ELEMENTS
The bottom bias remains powerfully bearish, below a 50-day moving average (in orange) which exerts significant chart weight. In the immediate future, nervous oscillations around the parity are considered. Note the downward acceleration of the aforementioned background trend curve. The closer the 20-day moving average gets to the 50-day moving average (in orange), the more attractive the bearish entry point looks to us.
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) parity.
Our entry point is at 1.0027 USD. The price target of our bearish scenario is at 0.9701 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0141 USD.
The expected return of this Forex strategy is 326 pips and the risk of loss is 114 pips.
CHART IN DAILY DATA
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