(News Bulletin 247) – Crucial week for traders who will have to contend successively, Wednesday and Thursday, with the Fed’s FOMC and the outcome of the Fed’s Board of Governors.
For the Federal Reserve, it is this whole essential question of the shape of the Fed Funds curve that will focus the attention of the markets for this last part of the year: more flattened, the progression could be slower, but what about the “terminal” rate?
For Erick Muller, Director of Products and Investment Strategy at Muzinich & Co, “the FOMC members’ projections (the DOTS) will send a clear message about the intentions to keep rates high for a long time, so as not to validating market expectations of a “pivot” which may seem premature for the Fed. This should result in a median projection up towards 5% for 2023 but also much more concentrated projections between 4% and 5% for 2024 than ‘last September, where the 2024 projections were very scattered.”
“The Last Rise [des Fed Funds] of the year could slow to 50 bps, after four consecutive increases of 75 bps”, for the strategists of IVO Partners. “Despite this, economic indicators in the United States, such as the PMI indices or the unemployment claims, bear witness to a cyclical slowdown and confirm investors’ expectations of a recession in 2023. Uncertainty still hangs over the extent and duration of this recession, although the consensus seems to be tending towards a “moderate” recession.
Concerning the ECB, which will in any case necessarily be influenced by a Powell effect, the question of the height of the market is not settled (50 or 75 bps?). “Basically, the outlook for inflation has not improved since the October meeting, supporting the need for a further 75 basis point hike to ensure that inflation expectations are firmly anchored and starting to make headway. lower underlying inflation”, for Nomura strategists. Therefore, the Japanese bank is sticking to this “bold” anticipation while acknowledging the odds of a 50bp rate hike.
In statistics on Friday, the producer price index inflated by 0.3% in November, against a target of 0.2%, and excluding food and energy from the basket, the index climbed 0.4% against consensus at 0.2%. Marked increase to report on the consumer confidence index (preliminary data, U-Mich), to 59.1, well above the consensus. No figures of major importance are on the agenda this Monday, and we will have to wait until tomorrow to have something to eat, with the German ZEW and the consumer price indices across the Atlantic.
At midday on the foreign exchange market, the Euro was trading against $1.0560 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 1.0556 USD. The price target of our bearish scenario is at 1.0101 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0661 USD.
The expected return of this Forex strategy is 455 pips and the risk of loss is 105 pips.
CHART IN DAILY DATA
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