(News Bulletin 247) – The Euro, which has suffered against the Dollar for more than a year, fell significantly below parity last week, in high volatility, under the combined effects of a very bellicose tone from the Fed, a hot geopolitical context and activity indicators leaving little doubt as to the passage of the Euro Zone through recession in the coming months. The Euro attempted a (very timid) technical rebound at the start of the week, even as major American indicators are looming (Conference Board consumer confidence, PCE prices, Q2 GDP).
In the immediate future, traders continue to have difficulty digesting the IFO index of the business climate in Germany. The barometer indicator for the leading economy in the Euro Zone missed expectations yesterday and fell to 84.3 points, the lowest since… March 2020 and the start of the health crisis. The comments accompanying the raw data from the survey are without concession or nuance: “Pessimism about the coming months has increased decidedly; in the retail trade, expectations have fallen to a record low. The German economy is slipping into recession.”
The greenback benefits at this stage from a double effect: that of a safe haven, from which it fully benefits, and that of the prospect of a yield gap that will still be high for several years against the Euro. “The weakening of market expectations for US inflation (the US two-year inflation break-even point has fallen to 2.3%) does not mean that the Fed considers its job done, in the end. On the contrary, it wants to see proof that realized inflation is falling before releasing its tightening cycle”, for Vincent Manuel, Chief Investment Officer, Indosuez Wealth Management.
To follow therefore, at 4:00 p.m., the consumer confidence index across the Atlantic. An indicator with a high potential impact, in the event of deviation from the target (the consensus is at 104 points).
At midday on the foreign exchange market, the Euro was trading against $0.9615.
KEY GRAPHIC ELEMENTS
While volatility has exploded since the last passage below parity, it is precisely the moment of reason to keep and avoid getting carried away by the temptation to reinforce its bearish positions on the currency pair, which can trigger any time the counterintuitive formation of a challenging move, heading towards its remarkable 20-day moving averages (in dark blue) at first.
MEDIUM TERM FORECAST
In view of the key graphic factors that we have mentioned, our opinion is positive in the medium term on the Euro Dollar (EURUSD) parity.
Our entry point is at 0.9615 USD. The price target of our bullish scenario is at 0.9889 USD. To preserve the capital invested, we advise you to position a protective stop at 0.9549 USD.
The expected return of this Forex strategy is 274 pips and the risk of loss is 66 pips.
CHART IN DAILY DATA
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