(News Bulletin 247) – Consolidation at work on the Euro/Dollar currency pair, in a foreign exchange market that has to deal with divergent signals, making it difficult to anticipate the Fed’s maneuver for the coming months. If the option of a 50 basis point increase in Fed Funds for the next deadline seems to be acquired, the question of the “terminal” rate still remains without a precise answer. Especially since employment on Friday and the ISM services index (yesterday at 56.5) signaled signs of an overheating economy.
This robustness of this part of the American economy comes to shower the hopes of a more accommodating Fed, after the announcement on Friday of job creations which exceeded the projections of economists. “However, the job market is still resisting. If the tensions are, there too, a little less strong, the job market remains surprisingly solid.” notes Thomas Giudici (Auris Gestion).
On the European side, the slowdown in the rate of price increases, although significant, does not mean “pivot”, in the sense of Nomura, which notes that “underlying inflation has remained strong and compared to movements in basic prices in November” For the Japanese bank, “this will be a cause of concern for the members of the Governing Council of the ECB”. [Autant que] “French industrial production [qui] collapsed in October, suggesting a weak fourth quarter GDP result […] The second economic power of the Euro Zone “could have gone into recession during the current quarter.”
For the European Central Bank, Ulrike Kastens, Economist Europe at DWS, agrees: “Attention should […] focus on the base rate (unchanged, for its part) rather than on the overall rate. And this will remain well above the ECB’s target due to wage increases, labor shortages and cost-induced price increases. In this regard, the ECB still needs to raise interest rates, even in restrictive territory. DWS expects “policy rates to be raised by an additional 150 basis points over the next few months. The deposit rate should then stand at 3%”
To follow as a priority on the statistical agenda this Tuesday, the American trade balance at 2:30 p.m. Already published, the monthly change in German industrial orders (+0.8%) in October largely exceeded expectations.
At midday on the foreign exchange market, the Euro was trading against $1.0520 about.
KEY GRAPHIC ELEMENTS
Volatility remains high on the spot which traces a broad consolidation, whose structure remains to be defined, around $1.0300. A continuation of these nervous oscillations is the preferred option, an unattractive graphic scenario for taking positions. We would prefer to stay out of the spot for the time being. The flag terminals are clearly marked, between 1.0240 and $1.05. The eventual formation of a diamond figure is not excluded.
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 1.0518 USD. The price target of our bearish scenario is at 1.0101 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0596 USD.
The expected return of this Forex strategy is 417 pips and the risk of loss is 78 pips.
CHART IN DAILY DATA
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