(News Bulletin 247) – Weighed down by inflation figures in the Euro Zone (first estimates for the month of August), in the midst of the gas crisis, the spot EURUSD went back below parity, in a perilous position.
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 odds of seeing a 75 bp rate hike from the ECB at the next Governing Council meeting next month are mechanically growing.
“The ECB has no choice but to engage in faster monetary tightening as long as inflation continues to rise,” warns Frederik Ducrozet (Pictet Wealth Management) in a note. “However, policy normalization will be difficult and a ‘stop-and-go’ approach looks increasingly possible. This means that the ECB could pause when the recession hits in early 2023, but resume the recovery rates when the economy recovers later next year.”
This inflation is set against a backdrop of the gas crisis in Europe, which is increasingly worrying investors, who fear a recession in the main economic centers of the planet. The geopolitical “hot spots”, between Russia and Ukraine, between China and Taiwan) complete a bleak picture.
Inflation, on the other side of the Atlantic, also nervously crystallizes the attention of forex traders, after a conference in Jackson Hole, in the second half of last week, which ended in a firm tone to say the least. of the great money-makers of the planet.
The fight against inflation in the United States “will make American households and businesses suffer, but giving it up would be even more damaging for the economy, warned Friday the head of the American Central Bank (Fed), Jerôme Powell. Returning to price stability “will take time” and will lead to “a long period of weaker growth” as well as “a slowdown in the labor market”, hammered the Chairman of the Fed, from the idyllic valley of Wyoming. The central banker also warned that the fight against inflation would “suffer American households and businesses”. The Fed wants to bring price inflation back to around 2%, and this policy will have “a series of ‘unfortunate costs'”, he also argued.
In terms of macroeconomic statistics on Tuesday, if the consumer confidence index (Conference Board) rose to 103.20, significantly more than the financial community had expected, new job vacancies (JOLTS), i.e. In other words, the statistic allowing the quantification of vacancies weighed negatively in the debates as it highlighted new and persistent signs of tension on the American job market. Signals that are leading indicators of inflation…
To follow the ADP employment survey at 2:15 p.m., the Chicago PMI at 3:45 p.m. and crude inventories at 4:30 p.m.
At midday on the foreign exchange market, the Euro was trading against $0.9980 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.
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 0.9980 USD. The price target of our bearish scenario is at 0.9701 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0101 USD.
The expected return of this Forex strategy is 279 pips and the risk of loss is 121 pips.
CHART IN DAILY DATA
©2022 News Bulletin 247
I have over 8 years of experience working in the news industry. I have worked as a reporter, editor, and now managing editor at 247 News Agency. I am responsible for the day-to-day operations of the news website and overseeing all of the content that is published. I also write a column for the website, covering mostly market news.
