(News Bulletin 247) – In the wake of the press conference closing the Governing Council of the ECB on Thursday, the Euro regained ground against the Dollar, returning significantly above parity, against a background of anticipation of a future reduction in the “remuneration” differential between the two spot currencies, Ms. Christine Lagarde having been particularly firm (hawkish in monetary jargon).
The powerful Frankfurt Monetary Institution raised its key rates by 75 basis points, as widely anticipated by trading rooms. But the ECB has also revised its inflation forecast upwards.. The harmonized consumer price index should thus increase by 8.1% in 2022 then 5.5% in 2023 and 2.3% in 2024, i.e. still above its inflation target of close to 2%. . Expectations that risk complicating the task of the ECB to contain inflation at its highest, prices having climbed in August to a record level of 9.1% over one year in the zone.
“Rhetoric hawkish on inflation and inflation expectations shows that the ECB will continue to tighten its policy aggressively in the short term” for Nomura strategists. “Therefore, [Nomura] changes its mind for October and December, and now expects 75bp at both meetings (previously 50bp in both), and still expects a final 25bp in February 2023.”
The decision on the magnitude of the tightening (+75 bps) is a record in the (short) history of the ECB. “Inflation rates will leave the ECB no choice but to continue raising interest rates sharply in October and December, even though the eurozone is already looking at a slowdown by then due to the consequences of the looming energy crisis,” says Martin Moryson, Europe Economist, DWS A 100 basis point interest rate hike cannot even be ruled out if inflation rates continue to rise and the situation of the economy in the face of the energy shortage is proving more favorable than expected.”
For the rest, the risk asset that is the Euro against the safe-haven Dollar will continue to come under pressure as the gas shock raises the specter of a recession in the Monetary Union in the coming months. . Just like the latest statistics from China, on foreign trade and real estate in particular.
At midday on the foreign exchange market, the Euro was trading against $1.0095 about.
KEY GRAPHIC ELEMENTS
the spot is back in touch with a moving average (50-day, in orange), which is not just any technical momentum level. This is a resistance level that has made sense since February 23rd. The initiation of short positions, with the placement of short stops, is judicious in terms of matrix analysis risk / reward.
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 1.0088 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 1.0176 USD.
The expected return of this Forex strategy is 387 pips and the risk of loss is 88 pips.
CHART IN DAILY DATA
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