(News Bulletin 247) – The Euro/Dollar underwent a brutal downward movement yesterday, relaunching the bottom movement in the wake of the publication of US inflation figures for the month of August. Figures that have fully thwarted the idea of a brake on the rise in prices. the spot EURUSD therefore suffered a “scissors effect”, consisting of two forces:
– a fall in the Euro linked to the need to get rid of risky assets in favor of safe havens
– a rise in the Dollar linked to the mechanical forecast of a stronger “remuneration” trajectory for the greenback.
If we summarize the situation chronologically: decelerating inflation in July had allowed a softening – quite relative – of the tone of the Fed; then Jackson Hole had set the record straight before August inflation, published yesterday, came to ring the definitive end of the (short) recess. And this brutally. Just take a look at government bonds (Treasuries) to 10 years which have soared towards 3.50% to realize this. Or on the Nasdaq Composite, ultra sensitive to the monetary question, which melted by 5.16% on Tuesday.
The consumer price indices have indeed cruelly cooled the atmosphere, invalidating the idea of a brake on the rise in prices. In particular, excluding volatile elements (food and energy), prices increased in August by 0.6%, or 6.3% on an annual basis.
From what “let[r] Federal Reserve (Fed) on high alert for now,” Pictet WM strategists said. “A third 75 basis point hike in the policy rate is likely on September 21, followed by 50 by 25 basis points in December, which would take the Fed’s final rate to 4% (vs. our previous forecast of 3.25%).
If we look at the backdrop of the table, still dominated by geopolitical risks (Russia-Ukraine, China-Taiwan), the context is not favorable to risk appetite on the financial markets.
“We therefore remain in a complex macroeconomic environment, combining geopolitical tensions, high inflation, risk of recession and restrictive monetary policy, as the midterm elections loom in the United States”, summarizes Vincent Manuel, Chief Investment Officer at Indosuez. WealthManagement.
Yesterday traders took notice of a further decline in the ZEW index, more deeply than expected by economists and analysts surveyed. The confidence index in the leading economy in the Euro Zone is at its lowest level since October 2008.
To follow this Wednesday the producer price index at 2:30 p.m.
This morning, another disappointment in the Euro Zone with particularly disappointing industrial production, in sharp contraction of 2.3% month on month in July, completely lacking in pessimistic expectations.
At midday on the foreign exchange market, the Euro was trading against $0.9995 about.
KEY GRAPHIC ELEMENTS
The passage, again, below parity with the Dollar is symbolic. It strengthens the character bearish background bias. Especially since it is following the formation of two consecutive high shadows above the 50-day moving average (in orange), that volatility has increased. This bottom trend line is definitely a dynamic level of resistance that is as reliable as it is valuable.
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 0.9997 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 296 pips and the risk of loss is 104 pips.
CHART IN DAILY DATA
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