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The Euro/Dollar continued to chart a wedge as tomorrow’s Fed FOMC issue approaches.
“The status quo is expected after several FOMC members floated the idea of a pause in June to allow time to observe more macroeconomic data, before a potential new rise in July even if this could disturb the message from the Fed”, says Thomas Giudici, head of bond management at Auris Gestion.
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%.
In the meantime, forex traders will be able to feed their thinking with the eagerly awaited consumer price indices in the United States. For the month of April in updated data, a slowdown in the rise in prices to 4.1% is expected, for the widest product base, against 4.9% in March.
Will this inflation be the “justice of the peace” of the Fed’s decision, asks Alexandre Baradez (IG France)? “It will therefore be necessary for the latest CPI inflation publications, expected Tuesday at 2.30 p.m., to confirm a more pronounced easing in order to act upstream on the scenario of a Fed pause.” M Baradez notes that the quiet periodwhich prohibits members of the Fed from speaking the week before monetary decisions, does not concern former members…
Eric Rosengren, former Boston Fed chairman from 2007 to 2021, said on Twitter that he expects a “hawkish pause” from the Fed (“hawkish skip”) including “aggressive projections” from Fed members for the remainder of the year “still reflecting sticky inflation and a tight labor market.”
This morning, forex traders were able to deal with the publication of the ZEW confidence index in the German economy, which has officially entered recession. The index comes out in negative territory (-8.5-, less deeply however than the consensus had predicted. “The ZEW indicator of the economic climate shows a slight improvement, but it remains in negative territory. This means that the experts do not expect the economic situation to improve in the second half of the year.In particular, export-oriented sectors are likely to perform poorly due to the weak global economy.However, the current recession is generally not considered as particularly alarming,” commented ZEW President Professor Achim Wambach.
At midday on the foreign exchange market, the Euro was trading against $1.0795 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 1.0795 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 359 pips and the risk of loss is 66 pips.
The News Bulletin 247 board
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