(News Bulletin 247) – The particularly firm tone used by the President of the ECB, Christine Lagarde, at the close of the Board of Governors on Thursday, as well as the increase in inflation forecasts for the coming months in the Euro Zone will have had a merit, in addition to that of clarifying the positions of the Frankfurt Monetary Institution: it is that of reducing the potential difference in “remuneration” between the two currencies of the spot. The Euro took advantage of this to go back above perfect parity with the Dollar, without drawing any reversal figure at this stage.
As a reminder, the powerful Frankfurt Monetary Institution raised its key rates by 75 basis points, as widely anticipated by the trading rooms. But the ECB has also revised upwards its inflation forecasts. 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.
“The normalization of key rates, in a context of excess liquidity of 4,500 billion euros and scarcity of collateral, risks hampering the transmission of monetary policy”, for Konstantin VEIT, portfolio manager at PIMCO. “Therefore the market was eagerly awaiting guidance on a number of points, such as remunerating banks’ excess reserves and public deposits at the central bank. With its decision to remunerate banks’ excess reserves at the rate of deposit facility and temporarily suspending the 0% cap on public deposit remuneration, the ECB has succeeded in allaying concerns about a surge in demand for high-quality collateral in a context of limited supply.”
It is in this context that currency traders will learn tomorrow (2:30 p.m. Paris time) of the latest US inflation figures, the statistical highlight of this first part of the week.
At midday on the foreign exchange market, the Euro was trading against $1.0165 about.
KEY GRAPHIC ELEMENTS
The spot is back in contact with a moving average (50 days, in orange), which is not just any technical dynamic level. This is a resistance level that has made sense since February 23rd. The initiation of short positions, with placement of short stops, is judicious in terms of risk/reward matrix analysis. We will also be attentive to the position of the daily “closing” in relation to the positioning of the 50-day moving average.
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 1.0165 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 1.0275 USD.
The expected return of this Forex strategy is 464 pips and the risk of loss is 110 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.
