(News Bulletin 247) – The Dollar has clearly strengthened its lead against the Euro, in the wake of a particularly firm FOMC yesterday evening. The movement is growing this Friday as the markets take the measure of the resolutely offensive tone of J. Powell. While no surprises came from the rate action itself – the Fed Funds were raised from 75 bps to 4.00%) – it was in the elements of language and in the tone of the comments that the tension was palpable.
The President of the powerful Central Bank has clearly dampened hopes of a pause, at the turn of the year, in the rate of progress of Fed Funds, this option being considered too “premature”. Moreover, the warning was clear on the prospects of reaching the neutral “rate”. The evaluation of the latter is still delicate.
“The Federal Reserve should continue to tighten monetary policy after the midterm elections as it continues to focus on core CPI inflation and job growth,” said Thomas Costberg, Senior US Economist at Pictet Wealth Management. “The risk of a strategic error is high given the lagged effect of interest rate hikes on GDP growth as well as the evaporation of market liquidity due, in part, to quantitative tightening. “
As a reminder, the neutral (pivotal) rate is the cost of money beyond which the Fed acts as a braking force preventing the economy from overheating.
In terms of statistics yesterday, 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). In addition, the survey of the private firm in human resources ADP has just calculated the number of new jobs created in the private sector (excluding agriculture) at 239,000, well beyond the consensus. A taste, before the NFP report on Friday, which confirms the persistent tensions on the American job market. Earlier in the week, new job openings (Job Openings and Labor Turnover Survey) came in at 10.720 million, beating expectations for September.
To follow, the Bank of England’s monetary policy decision at 1:00 p.m., and across the Atlantic, weekly registrations for unemployment benefits at 1:30 p.m., as well as the ISM services index in final data for October at 3:00 p.m. In the immediate future, the unemployment rate in the Euro Zone came out slightly down, unsurprisingly, at 6.6% of the active population. It is stagnating at 3.0% in Germany, according to the latest figures from EuroStat for the month of September in final data.
At midday on the foreign exchange market, the Euro was trading against $0.9745 about.
KEY GRAPHIC ELEMENTS
In significant 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). Knowing that the last green body dates from the “session” of 10/26, and that this trendline is in the phase of reaffirmation of its negative slope, we will speak of false exit and reintegration. The bearish message is reinforced.
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 0.9745 USD. The price target of our bearish scenario is at 0.9401 USD. To preserve the capital invested, we advise you to position a protective stop at 0.9881 USD.
The expected return of this Forex strategy is 344 pips and the risk of loss is 136 pips.
CHART IN DAILY DATA
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