(News Bulletin 247) – The precious 50-day moving average (in orange) continued to constitute a dynamic graphical force of resistance, on the EURUSD currency pair, as we approach the end, tomorrow, of a new Council 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 remain on the lookout for any signal that could invalidate or confirm a scenario of a slowdown in the rate of tightening of the monetary tap for the months to come. Investors 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 hikes in key rates at the beginning of next year. Also according to this article, the institution would be heading for a rate hike of 0.75 percentage points at its next meeting in early November.
Thomas Giudici, joint head of bond management at Auris Gestion, wonders: “Is this a harbinger of the long-awaited “dovish pivot” of the Fed? The members of the FOMC seem, in any case, still divided , the more dovish campaigning for a pause to watch the consequences of tighter financial conditions. core [hors alimentation et énergie] should continue to be vigorous in the coming months due to strong inertia on certain components (rents in particular), will the Fed take the gamble of releasing the pressure too soon after making a mistake in 2021?
With a German IFO slightly above expectations, the expectation of ECB decisions and the relative lull in gas prices allowed the risky currency to put up some resistance over this first part of the week.
“Clement temperatures, rising imports, recovery of hydroelectric production, slumping demand and deteriorating growth prospects combine to weaken natural gas prices below 130 €/MWh” list the strategists of BFT Investment Managers. “The initiatives of Europe (group purchases by a consortium, new reference price for March 2023 and dynamic price limit on the TTF market in the meantime, solidarity in the event of a shortage) appear timid.” they temper.
In terms of statistics, investors took note on Monday 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 Flash PMI index of manufacturing production in the euro zone fell to 44.2 (46.3 in September). That is a “low” of 29 months.
To follow the index of confidence of American consumers (CB), in priority this Tuesday, at 4:00 p.m.
At midday on the foreign exchange market, the Euro was trading against $0.9865 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 clearly defined stop loss level, which mechanically increases 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 0.9864 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 463 pips and the risk of loss is 137 pips.
CHART IN DAILY DATA
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