(News Bulletin 247) – The Euro was back in contact with its 50-day moving average (in orange), a litmus test in contact with a resistance level that has made sense since the end of February. And this at the approach of the outcome of a new Board of Governors of the European Central Bank (ECB).
“Inflationary pressures remain high and the Governing Council aims to quickly bring its key rates back to neutral territory” summarizes Konstantin VEIT, portfolio manager at PIMCO, who believes that “the European Central Bank (ECB) will raise its key rates by 75 points additional basis points at its October meeting We expect an additional 50 basis point hike in December, which would bring the policy rate down to 2% and towards the upper bound of most estimates of a Eurozone neutral policy rate We believe the Governing Council will make it clear that a neutral policy framework may not be appropriate under all conditions, and we expect a transition to 25 basis point increases next year. next, as the up cycle pivots from policy normalization to policy tightening.”
On the Fed side, currency traders are clinging to information from the Wall Street Journal according to which some members of the Federal Reserve would not be against the idea of slowing the pace of its monetary tightening from December before stopping the increases in key rates early next year. Also according to this article, the institution is heading for a rate hike of 0.75 percentage point (75 bps) at its next meeting in early November.
In the immediate future, operators have just become aware of valuable activity indicators: the PMI (Purchasing Manager’s Index), for services and industry, as a first estimate for the current month. Note that the disappointment is strong on the German industrial component, at -45.6, the lowest since June 2020… The PMI index Flash of manufacturing production in the euro zone fell back to 44.2 (46.3 in September). That is a “low” of 29 months.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, comments on the latest figures from the Flash PMI survey: energy crisis and depress activity levels, particularly in energy-intensive sectors.At the same time, inflationary pressures remain very high, as declines in commodity prices induced by improved supply chains have been offset by the increase in the cost of energy and labor as well as by the depreciation of the euro.”
On Friday, the Eurostat consumer confidence index in the Euro Zone rose only marginally, to -28 points, still clearly in negative territory.
At midday on the foreign exchange market, the Euro was trading against $0.9840 about.
KEY GRAPHIC ELEMENTS
We are resuming our bearish work on the Euro/Dollar currency pair, with an adequate entry point, following pullback on parity AND 50-day moving average. With the advantage of having a level of stop-loss clearly defined, which mechanically raises the quality of the money management associated with the operation. “Trend is your friend”, teaches us the precious stock market adage. This contact gives the proposed operation a major statistical interest.
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 0.9837 USD. The price target of our bearish scenario is at 0.9401 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0001 USD.
The expected return of this Forex strategy is 436 pips and the risk of loss is 164 pips.
CHART IN DAILY DATA
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