(News Bulletin 247) – No respite for the Euro, which accentuated its losses against the Dollar, sinking further below perfect parity (one for one), with the publication of unattractive PMI activity indicators this morning. As a reminder, at the heart of the week, downward volatility increased in the light of the belligerent tone of the Fed, which was completing a new Monetary Policy Committee (FOMC).
Regarding the PMIs (activity indicators calculated after analysis of past surveys of purchasing managers), the “scores” remain significantly below the 50-point mark which separates, by construction, a contraction from an expansion of the sector considered. The disappointment is particularly strong for the services component in Germany alone, at 45.4 in preliminary data for the month of September, completely missing the target. For synthetic data across the Euro Zone, at 48.5 for industry and 48.9 for services, the leading indicator sends a pessimistic message.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, provided the following additional insights: “An economic recession is looming in the Eurozone, with businesses in the region reporting worsening economic conditions and rising inflationary pressures , linked to a surge in the cost of energy. […] It is in Germany that the economic situation has deteriorated most sharply, the rate of contraction having indeed reached (excluding periods of confinement) its highest level since the global financial crisis.
As a reminder on Wednesday, the Fed opted for the most widely anticipated scenario, namely that of an increase of 75 basis points, to bring the dollar’s rent to 3.25%. Two additional increases are expected by the end of the year. What penalized the market quite significantly, on the other hand, was the pessimistic nature of the revisions to the Fed’s economic forecasts, on unemployment, to 4.4% in 2023, on inflation (2025 only for the return to 2 %), and growth (almost zero this year, and 1.2% in 2023). What weigh more on the asset “at risk” that is the single currency, while ensuring a yield differential very favorable to the greenback.
A much more favorable breeding ground, therefore, for the safe haven represented by the Dollar, all the more since the “leak ahead” operated by V. Poutine at the beginning of the week, decreeing the mobilization of 300,000 reservists within the framework of the conflict. in Ukraine.
To be followed by equivalent PMI indicators (data flash for the current month) in the United States at 3:45 p.m. and a speech by J. Powell at 8:00 p.m.
At midday on the foreign exchange market, the Euro was trading against $0.9750 about.
KEY GRAPHIC ELEMENTS
The passage, again, below parity with the Dollar is symbolic. It strengthens the character bearish background bias. The confirmation by the volatility is important, with around 200 pips of sharp decline. We switch the perfect parity (one for one) to a major resistance level, and keep in mind that the 50-day moving average (in orange), is an important benchmark in trend followingg.
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 0.9754 USD. The price target of our bearish scenario is at 0.9501 USD. To preserve the invested capital, we advise you to position a protective stop at 0.9846 USD.
The expected return of this Forex strategy is 253 pips and the risk of loss is 92 pips.
CHART IN DAILY DATA
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