(News Bulletin 247) – The readjustment between the Euro and the Dollar continued in favor of the latter as the markets revised their plans for the shape of the Fed Funds curve.
Weekly jobless claims, U-Mich consumer confidence index, PCE retail price index… Statistical data showing a warming US economy, against a backdrop of chronic inflation and job pressures n will not have missed on the second part of last week. As a consequence, the foreign exchange market is faced with a reality: that of having to deal with Fed Funds still high throughout this year, without any certainty about the value of the so-called terminal rates.
High point on Friday, the PCE (for personal consumption expenditures), the Fed’s favorite measure in its inflation assessment, came out above the target on Friday (+0.6% month on month against +0 .4%).
“These data would therefore corroborate the new market scenario of a “no landing” (after the debates between the proponents of a “hard landing” and those of a “soft landing”)”, advances Thomas Giudici, head of bond management at Auris Gestion. “The downside of this renewed growth, the fall in inflation could therefore take longer than expected, which, to use the words of Janet Yellen, will not take place “in a straight line”. As such, the publication last Friday of PCE inflation above expectations, both on a monthly and annual basis, confirmed these fears.
To be followed as a priority on the macroeconomic agenda this Tuesday, as a priority, the American consumer confidence index (Conference Board) at 4:00 p.m. Also to follow is the S&P Case Schiller index of real estate prices in around twenty representative cities, as well as the Richmond Fed’s manufacturing index.
At midday on the foreign exchange market, the Euro was trading against $1.0610 approximately.
KEY GRAPHIC ELEMENTS
After gradually weakening from February 6 to 14, the 50-day moving average (in orange) ended up giving way. This underlying trend line is now under threat from its 20-day counterpart (in dark blue). The sell signal would then gain in intensity if necessary. The crossings of these two remarkable moving averages have indeed provided excellent positioning and trade monitoring signals for many months. This crossing is in progress, moreover in a relatively important angle.
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 1.0610 USD. The price target of our bearish scenario is at 1.0239 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0711 USD.
The expected return of this Forex strategy is 371 pips and the risk of loss is 101 pips.
The News Bulletin 247 board
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