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The work matrix remained the same on the Euro/Dollar currency pair, in a market environment gradually integrating the need to pursue, for a few more months, a firm monetary policy on both sides of the Atlantic. Christine Lagarde recalled it yesterday: according to comments reported by the Reuters agency, the central banker felt that she currently saw no “tangible proof” that underlying inflation (excluding energy and food prices) had reached “a peak”. Pricing pressures also remain “high”, she added, speaking at a hearing before MEPs.
Ulrike Kastens, DWS Europe Economist, argues that “a further 25 basis point hike in key interest rates is possible at the June meeting”, for an ECB still very “dependent on data”.
“The European Central Bank (ECB) is expected to raise all key interest rates by an additional 25 basis points in June 2023. The deposit rate would then stand at 3.50%, which is currently in line with market expectations. The question that agitates the market, however, is whether the ECB will announce further interest rate hikes beyond this date.Even if the inflation rate in May 2023 fell more than expected, [les stratégistes de DWS] believe it is still far too early to claim victory.”, citing “underlying inflationary pressures, in particular, [restant] worrying”.
On the Fed side, the analysis is made in the light of tensions in the employment market, among other guiding elements. William Gerlach, Regional Director France and United Kingdom. iBanFirst, thinks “the Fed should take a break in June, as Jerome Powell has indicated. If the interim economic data is quite strong, the Fed will raise rates, which other institutions have also said they want to do. The The short-term pace is more uncertain than usual, which should induce greater volatility in exchange rates.Keep in mind that the Fed knows full well that it is not easy to raise rates during a year of presidential elections and rising unemployment (2024).”
Unemployment rate which has already started to rise, stronger than expected, as shown by the confusing content of the NFP report (No Farm Payrolls) for the month of May, published on Friday. Currency traders have therefore noted a significant increase in the unemployment rate from 3.4% to 3.7% of the working population, proof of “efficiency”, with the necessary quotation marks in the restrictive policy of the Fed . This brake is finally palpable on employment, the dynamics of rising wages remaining stable moreover… But – because there is a but – the American economy would have created nearly 340,000 jobs in the sector private (non-agricultural), exploding the target. What give new nodes to the brain of the Fed, whose obsession is the runaway spiral prices wages, hitherto avoided.
A break in June, to pick up again in the summer? This is what forex traders will try to refine with the next statistical publications in the meantime, in particular the consumer price indices, on June 13th. An appointment to tick in red in the agenda.
The Fed will complete its next FOMC on June 14 and the ECB its Board of Governors on June 15.
At midday on the foreign exchange market, the Euro was trading against $1.0690 approximately.
KEY GRAPHIC ELEMENTS
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. Next intermediate threshold identified: $1.0550, a break in which would, if necessary, have consequences in terms of one-off downward acceleration. The short position will be held as long as the 20-day moving average gravitates below its 50-day counterpart (in orange).
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 1.0690 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 1.0785 USD.
The expected return of this Forex strategy is 254 pips and the risk of loss is 95 pips.
The News Bulletin 247 board
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