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The bias remained bearish on the Euro / Dollar currency pair on Tuesday, with the return of major benchmarks: Wall Street, first of all, remained closed yesterday due to a public holiday (Memorial Day), and the publication of the sacro -saint consumer confidence index (Conference Board). The opportunity to gauge the main lever of wealth creation of the first economy on the planet.
In the meantime, it is clear that the “in principle” agreement reached between Joe Biden and the Republican leader McCarthy on the subject of the public debt is only enough to stabilize the decline in risky assets at the very beginning of the week. On the foreign exchange market, the hemorrhage was temporarily stopped on the Euro, which stabilized around $1.0720.
A so-called agreement in principle, reached this weekend, on raising the debt ceiling, which still has to be voted on in both Houses of the American Parliament. That is to say a more than imperfect agreement, torn off at the cost of numerous budget cuts, and whose final vote is uncertain.
On the monetary policy side, in addition to the acceleration in prices, the robustness of US consumption should fuel investor speculation about a possible rate hike by the Fed in June. Moreover, according to the CME Group’s FedWatch tool, investors are factoring in a probability of more than 60% of a quarter-point increase in these key rates at this next meeting, which will take place on 13 and 14 June.
“The publication of the Minutes of the monetary policy committee which was held in May confirms the strategists of Groupama AM in [leur] scenario: we are not considering a Fed Fund cut, the trajectory remains bullish and the markets must factor in the probability of a rise”. For them, “a pause in monetary tightening is possible in June, but it is not yet acquired and the question of raising the key rate should in any case come to rest quickly.”
No macroeconomic figures came to liven up the session yesterday. As a reminder on Friday, investors took a back seat to the release of consumer income and spending figures for April, including those from the PCE index, the US Federal Reserve’s (Fed) preferred gauge for measuring inflation. This indicator increased by 4.4% over one year against 4.2% the previous month. The underlying “core PCE” index, which excludes volatile data such as food and energy, accelerated to 4.7% year on year from 4.6% the previous month. For their part, US household spending rose more than expected, by 0.8% in April, while their incomes also rose (+0.4%).
To be followed on the American side on Tuesday, durable goods orders at 2:30 p.m., the consumer confidence index at 4:00 p.m. (Conference Board). Also to follow are new home sales and the Richmond Fed manufacturing index at 4:00 p.m.
At midday on the foreign exchange market, the Euro was trading against $1.0715 approximately.
KEY GRAPHIC ELEMENTS
The identified, fully validated ascending channel exit is accompanied by a triple top pattern (04/14, 04/26, 05/04), which supports our bearish scenario on the flagship currency pair. We are now monitoring the relative dynamics of the moving averages, keeping in mind that the price/RSI divergence has already sent a pessimistic message for a while.
The 20-day moving average (in dark blue) has just cut downwards the trajectory of its 50-day counterpart (in orange): the bearish message emerges strengthened. Note the importance of the crossing angle of these trend curves.
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 1.0716 USD. The price target of our bearish scenario is at 1.0436 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0801 USD.
The expected return of this Forex strategy is 280 pips and the risk of loss is 85 pips.
The News Bulletin 247 board
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