(News Bulletin 247) – The Dollar and the Euro neutralize each other in the very short term, below parity, after speeches marked by great firmness from central bankers on both sides of the Atlantic, on the occasion of the Jackson Hole colloquium in the second half of last week. If the Dollar maintains the safe-haven advantage, the Euro may find momentary support ahead of a 75bp rate hike next month.
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.
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 Jerome Powell on Friday.
“This intervention came to break the prospect of having a rate cut from the beginning of 2023, which had allowed this bullish rebound, observed since mid-June” notes Vincent Boy, IG France, who also notes another source of concern, able to weigh on risk appetite in the coming weeks: “China is trying to stem the slowdown in its economy and reduce tensions in the real estate market, by lowering its rates and increasing the support measures for economy, against the grain of other world economies, but that does not seem to be enough for the markets, given the risks within the second world economy.
In the statistical chapter on Friday, note the publication of a first slowdown in the rise in prices besides the Atlantic. Published on Friday, the consumer price index core PCE (the Fed’s favorite measure) came out in data corrected for volatile elements, at +0.1% in July, against a consensus at +0.2% and a month of June at +0.6% month-on-month. Over one year it increased by 6.3% in July over one year, marking a marked slowdown compared to June, when it had increased by 6.8%.
If the statistical program is almost deserted on Monday, the agenda “will gradually increase” until Friday with, in particular, the consumer confidence index (Conference Board) on Tuesday, the ADP US employment survey on Wednesday, the ISM manufacturing PMI on Thursday, and the long-awaited federal monthly employment report on Friday. The opportunity to more finely measure the degrees of tension on employment, tensions that are a source of inflation.
At midday on the foreign exchange market, the Euro was trading against $0.9970 about.
KEY GRAPHIC ELEMENTS
At this stage, the return, frank, in contact with parity, looks like a pullback (graphic rejection). The bottom bias remains powerfully bearish, below a 50-day moving average (in orange) which exerts significant chart weight.
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 0.9968 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 1.0056 USD.
The expected return of this Forex strategy is 267 pips and the risk of loss is 88 pips.
CHART IN DAILY DATA
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