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The Euro was already stabilizing after a short technical rebound yesterday against the Dollar, towards $1.0770, while traders are nervously wondering about the relative trajectories of the yield curves in Europe and the United States, after the rise surprised by the Bank of Australia and the Bank of Canada by 25 bps of their cost of money.
The Fed and the ECB will complete next week, June 14 and 15, an FOMC and a Board of Governors. A firm tone is expected from the two great fundraisers. Important point to remember, the probabilities of seeing a status quo on Fed Funds have completely reversed in recent days in favor of a 25 bp hike, in particular due to persistent inflation, maintained by chronic tensions in the labor market.
“Certainly, elements plead for a break in June” notes, William Gerlach, Regional Director France and United Kingdom at iBanFirst. “Major indicators and proxy data (notably the Chicago PMI manufacturing index) confirm that the risk of recession is growing significantly. But on the other side of the spectrum, the latest employment figures indicate that a tightening could be necessary to ensure that inflationary pressures do not reappear.”
The consumer price indices in the United States will be published next week, on the eve of the verdict on the Fed Funds.
M Gerlach favors “the following scenario: an increase [des Fed Funds] in June and July before taking a break. On the ECB side, “while inflation remains the main concern, the ECB has every reason to raise interest rates by 25 basis points next week.”
In terms of economic statistics, currency traders learned of a stronger than expected increase in weekly registrations for unemployment benefits, to 261,000 new units. Earlier in the day, operators took note of a contraction of 0.1% of GDP in the euro zone in the first quarter, against an increase of 0.1% in the first estimate.
At midday on the foreign exchange market, the Euro was trading against $1.0770 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 with discipline 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 1.0763 USD. The price target of our bearish scenario is at 1.0436 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0861 USD.
The expected return of this Forex strategy is 327 pips and the risk of loss is 98 pips.
The News Bulletin 247 board
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