(News Bulletin 247) – The Euro/Dollar currency pair melted yesterday, moving significantly away from perfect parity, following the FOMC (Federal Open Market Committee). The Fed will not have brutalized the market with a 100 basis point hike in Fed Funds, and 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.
“Updated central bank views on the future course of the economy now show a willingness to raise interest rates to 4.4% for the rest of the year and keep them slightly at the above this level (at 4.6%) until 2023”, notes Christian Scherrmann, US economist at DWS. “The jump from the Fed’s June projection is substantial: 100 basis points higher than in June. So policy going forward looks more belligerent than before.”
“This meeting demonstrates once again that the Fed is prepared to do what is necessary to bring inflation under control. It will dampen demand by keeping rates higher for longer – even if that means growth and jobs will be lost.” , continued the economist.
The dollar’s character as a safe haven is thus fully expressed, in the current ultra-tense geopolitical context. The “Master” of the Kremlin announced, yesterday morning during a televised address, a partial mobilization of 300,000 men, and once again brandished the threat of the use of nuclear weapons. “Putin’s declarations are also a reflection of his weakness” slice Frédéric Rollin, investment strategy adviser at Pictet AM. “Besides, mobilizing and arming so many soldiers is probably beyond his means.”
On the statistical side, to follow as a priority this Thursday, the weekly registrations for unemployment benefits in the United States at 2:30 p.m. and the consumer confidence index in the Euro Zone at 4:00 p.m. The agenda will become much more dense tomorrow with a battery of activity indicators (the PMIs), in preliminary data for the current month. Valuable leading indicators, which can have a significant impact on the spot in case of deviation from the consensus. To view them, go here.
At midday on the foreign exchange market, the Euro was trading against $0.9870 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 following.
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 0.9868 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 0.9961 USD.
The expected return of this Forex strategy is 367 pips and the risk of loss is 93 pips.
CHART IN DAILY DATA
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