EUR/USD: US consumer price indices on the menu

(News Bulletin 247) – In the absence of surprises (good or bad) contained in the Minutes of the Fed published yesterday, the Euro/Dollar managed to grab some pipsafter the formation of two stars doji consecutively, and pending the publication this afternoon (2:30 p.m., Paris time), of the various consumer price indices across the Atlantic. Excluding food and energy (so-called underlying inflation), price increases are expected at +0.2% monthly. Any upward overshoot would mechanically cause US sovereign bond yields to rise, with 10-year bonds then able to return to the symbolic 4% threshold. Regarding the largest basket of products, inflation is expected to fall, from 8.4% to 8.2% in September at an annualized rate.

Not surprisingly, these Minutes clearly hinted that the members of the Fed were in agreement on the need for major new tightening of the screw to fight against chronic high inflation, even if it meant weighing heavily on economic activity. “Such a tightening of monetary and financial conditions, if it were to continue at the current pace, would obviously not be without risk for growth and financial stability on a global scale”, can we read in the latest COFACE barometer entitled “Cold snap on the world economy”.

“In the dock – sometimes wrongly – for letting the inflation genie slip out of the lamplight, central banks now risk dragging the global economy into a deep slowdown or even a recession. “

Recall the publication at the beginning of the week of a Sentix index of investor confidence at the lowest since May 2020… The barometer value indicator sank to -38.3, missing expectations, however pessimistic, at most low since May 2020. “The continuing uncertainties over the winter gas and energy situation have not diminished due to the attack on the Nordstream pipelines. In addition to economic worries, there is now also a growing likelihood of an escalation of the military conflict in Ukraine. Overall, there is little reason to hope”, could we read on the cold and laconic commentary accompanying the publication of the firm specializing in behavioral finance…

The Japanese bank Nomura agrees, for which “there is little room for a respite to come”, and which remains pessimistic about the dynamics of the index, materializing a reminder of a scenario of “imminent recession”. Despite the continued deterioration in sentiment, Nomura maintains its view on the ECB. “Recent comments from members of the ECB Governing Council clearly show that they are focused on bringing inflation down to target. This confirms our view that the ECB will hike by 75 basis points at each of the next two meetings (in October and December), followed by a 25 basis point hike in February 2023.”

At midday on the foreign exchange market, the Euro was trading against $0.9740 about.

KEY GRAPHIC ELEMENTS

We resume our bearish work on the Euro/Dollar currency pair, with a suitable 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.

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 0.9729 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 0.9891 USD.

The expected return of this Forex strategy is 328 pips and the risk of loss is 162 pips.

CHART IN DAILY DATA

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