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If the calendar of forex traders was rather thin last week, it is considerably dense and rich in major events, starting with the outcome of the Fed’s monetary policy meetings on Wednesday and the ECB’s on Thursday. In the meantime, forex traders will be able to contend with the highly anticipated consumer price indices in the United States tomorrow, as well as the ZEW index of confidence in the German economy. The equation becomes more complex as the signs of an economic slowdown multiply on both sides of the Atlantic, against a backdrop of persistent inflation.
“On the US Federal Reserve, while investors have been euphoric for a few weeks, the odds on Fed rate action continue to show that the FOMC could announce a pause, before perhaps raising rates again. from July”, anticipates Vincent Boy (IG France). The Fedwatch tool, developed by CME Group, allocates a probability of 74.8% of a status quo on the remuneration of Fed Funds, within a limit of between 5 and 5.25%.
“On the side of the ECB, the rate should again be increased by 25 bp and Christine Lagarde should confirm that this is not the last. Inflation in the euro zone remains at levels even higher than in the United States .”, adds M Boy. Keep in mind that the cycles of the ECB and the Fed are not synchronous.
Before these meetings, market operators will dissect the publication of US inflation for the month of May on Tuesday. These are consumer price indices. These prices, in annualized data, and for the widest product base, are expected to rise by 4.1%, against 4.9% in the last publication.
At midday on the foreign exchange market, the Euro was trading against $1.0765 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).
Our entry point is at 1.0764 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 1.0861 USD.
The expected return of this Forex strategy is 328 pips and the risk of loss is 97 pips.
The News Bulletin 247 board
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