(News Bulletin 247) – The two major central banks on both sides of the Atlantic having adopted, on Wednesday for the Fed and this Thursday for the ECB, relatively firm tones at the end of their respective monetary policy meetings, the spot EURUSD finally varied little, maintaining a bullish bias above its 20-day moving average (in dark blue).
Yesterday it was the turn of the ECB to complete its Board of Governors, the last of the year. While the scale of the ECB’s rate hike did not come as a surprise (+50 bp yesterday after the Board of Governors), the tone of the speech and the revision of economic forecasts caught the eye. The powerful Frankfurt Monetary Institution has revised its economic projections, particularly in terms of inflation, counting on a rate for the euro zone of 8.4% in 2022, 6.3% in 2023 then 3.4% in 2024 and finally 2.3% in 2025.
“The ECB indicates […] that its main tool for steering monetary and financial conditions in the euro zone will change: the emphasis will be placed next year on withdrawals of liquidity via the significant reduction in the size of its balance sheet at the rate of 15 billion per month” , notes Etienne de Marsac, Head of Fund Management at Sunny AM, “The “Quantitative Tightening” program has finally been launched in the euro zone, and European financial markets are entering uncharted territory…”
Currency traders were nervous at the time of the press conference following the various monetary announcements. A press conference “characterized by a particularly “Hawkish” language”, [c’est à dire offensive, bellliqueuse]for Francesco Pesole, economist at ING, “Christine Lagarde explicitly stressing that the markets are underestimating the monetary tightening necessary to bring inflation back to its target.”
What remains “uncertain about the pace and extent of ECB rate hikes, given the great uncertainties surrounding the dynamics of inflation”, for Konstantin VEIT, portfolio manager at PIMCO. “The market is currently pricing a final rate of around 3.25%, which doesn’t seem unreasonable after statements hawkish of today.”
In terms of statistics, operators had to deal with major American macroeconomic indicators showing, on the whole, negative signals (retail sales, Philly Fed, Empire State Index), in a labor market whose signs of tension persist (weekly registrations for unemployment benefits).
In the immediate term, forces are balancing out on the Euro/Dollar currency pair, with a firm tone from central bankers on both sides of the Atlantic. Moreover, the publication this morning of PMI indicators, in first estimates for the current month, beyond expectations, particularly for the German industrial component (47.4), brings more credit to the single currency, in the face of a Dollar, whose “remuneration” potential is still strong.
At midday on the foreign exchange market, the Euro was trading against $1.0630 around.
KEY GRAPHIC ELEMENTS
The publication of a marked slowdown in US inflation is pushing the Dollar back as much as it is supporting the risky asset that is the Euro. In this sense, the anticipation of a diamond congestion pattern does not make more sense, and the 20-day moving average (in dark blue) plays its supporting role. Positive opinion kept above.
MEDIUM TERM FORECAST
In view of the key graphic factors that we have mentioned, our opinion is positive in the medium term on the Euro Dollar (EURUSD) parity.
Our entry point is at 1.0638 USD. The price target of our bullish scenario is at 1.1189 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0480 USD.
The expected return of this Forex strategy is 551 pips and the risk of loss is 158 pips.
CHART IN DAILY DATA
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