(News Bulletin 247) – While a fringe of investors – the month of October on the equity markets illustrates this – lives on the hope of a slowdown in the Fed’s tightening process, the outcome today he new Fed Monetary Policy Committee will be a clear opportunity to sharpen ‘pivot’ expectations. With the risk of a false start…
If the scenario of an increase in Fed Funds of 75 basis points is in any case almost certain, it is the elements of language at the press conference that will be scrutinized, to see how the Fed is positioning itself, in particular compared to the latest PCE (consumer price) publications at the end last week, and new job postings (JOLTS) yesterday.
For Franck Diximier (Global CIO Gestion de Rates Allianz GI), the Fed will “stay the course”, that is to say that of an offensive monetary policy, with the aim of avoiding entry into a price/wage loop. “The Fed has no choice but to focus on its primary mandate of price stability and to continue to act quickly and strongly”, for the asset manager.
“The Fed is sticking to the logic inaugurated at its meeting in June, with a higher than expected rate hike: it is a question of carrying out as many rate hikes as possible over the next few months before the window of opportunity is closing. Because the risk of recession, or at least that of a sharp deceleration in growth from the end of the year, is now anticipated by the markets. The Fed must therefore act now, in order to continue to anchor the inflation expectations and restore room for manoeuvre.
In terms of statistics, new job offers (JOLTS) came out at 10.72 million, above expectations for the month of September. A first indication of the tensions on American employment this week before the publication of the ADP survey on Wednesday, weekly registrations for unemployment benefits on Thursday and the monthly federal NFP report on Friday.
The US manufacturing PMI activity indicator came out yesterday down to 50.2, in the immediate vicinity of the 50 points that separate, by construction, an expansion (beyond) from a contraction (below) of the sector in question.
In the immediate future, note the very sharp drop (45.1) in the German manufacturing PMI for the month of October in final data, far from the first estimates (45.7).
At midday on the foreign exchange market, the Euro was trading against $0.9890 about.
KEY GRAPHIC ELEMENTS
In high volatility, the currency pair has successively drawn two marubozus in daily data, of equal magnitude, and of comparable level, around the perfect parity, which continues to constitute a pivot level in the immediate future. The current main issue is positioning relative to the 50-day moving average (in orange).
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 0.9899 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 1.0001 USD.
The expected return of this Forex strategy is 398 pips and the risk of loss is 102 pips.
CHART IN DAILY DATA
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