EUR/USD: C Lagarde will have to indulge in a balancing act

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The Euro fell sharply again yesterday, in a volatility that was measured by the fears aroused by the Credit Suisse file, which terrified a whole part of the rating in Europe, barely a few days after the debacle of SVB and two other mid-sized American banks.

The Swiss establishment suffered a violent stock market plunge, losing more than 30% during the day, before climbing back up the slope a little to close at -24% (the worst fall in its history on the stock market). The earthquake originated in statements by the President of the Saudi National Bank, Ammar Al Khudairy. The latter declared on Bloomberg TV that it was out of the question for his group, the largest shareholder of Credit Suisse with nearly 10%, to inject liquidity into the Swiss bank if it were to need it. The Swiss National Bank has said it is ready to help the emblematic banking institution. This is enough for the moment to stop the bleeding.

But the blow is hard in the heads of the operators, and it is in a particularly heavy atmosphere that C Lagarde will have to try to reassure the financial community at a press conference this Thursday (2:45 p.m.), conference coming to complete a new Board of Governors (decisions published at 2:15 p.m.). An increase in key rates of 50 basis points is the preferred option.

“The failure of Silicon Valley Bank (SVB) should remain a contained event and should not deter the ECB from raising its rates by 50 basis points at its meeting on Thursday”, anticipates Julien Russo, portfolio manager senior, Money Markets, at Swiss Life Asset Managers France, although obviously, “Christine Lagarde will have to reassure investors in a context of market stress”.

“This bank failure should not cause a new bout of panic on the markets, and central banks will have to remain focused on their main mandate of fighting inflation while inflation remains high in the euro zone (+8.5% over one year in February).In this context, [M Russo] thinks that the ECB will increase its key rates by 50 basis points during the meeting of the Governing Council on Thursday, as expected. Nevertheless, a speech that is too “hawkish” out of step with what Jerome Powell might announce the following week could cause the euro to appreciate too much against the dollar.”

To follow at 1:30 p.m. on the American side, weekly registrations for unemployment benefits, expected to drop very slightly to 205,000 new units for week 10.

At midday on the foreign exchange market, the Euro was trading against around $1.0605.

KEY GRAPHIC ELEMENTS

The pullback, centered on the doji star, against the 50-day moving average (in orange) is now validated, and the bearish bias of the single currency against the greenback, in a context of loss of risk appetite, is confirmed.

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 invested capital, we advise you to position a protective stop at 1.0731 USD.

The expected return of this Forex strategy is 371 pips and the risk of loss is 121 pips.

CHART IN DAILY DATA