EUR/USD: 4.7% probability of an increase in Fed Funds, Fed your games!

(News Bulletin 247) – This article, in free access, is produced by the stock market analysis and strategy research team of News Bulletin 247. To not miss any opportunity, consult all the analyzes and discover our portfolios by accessing our Privileges area.

The Euro/Dollar continued its evolutions, compressed within a bevel (wedge), with the approach, this evening, of a new meeting of monetary policy of the Fed.

“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 cloud the Fed’s message “says Thomas Giudici, head of bond management at Auris Gestion.

The Fedwatch tool, developed by CME Group allocates a 95.3% probability of a status quo on Fed Funds remuneration, within a limit between 5 and 5.25%. This probability was around 75% before the publication of the CPIs yesterday.

In detail, consumer prices in annualized data in April rose by 4%, against 4.1% expected and 4.9% in March, in the broadest product base. On the other hand, no deviation to report compared to the target for prices, excluding food and energy, in monthly data (+0.4%). The “core” figure, that is to say excluding food and energy prices, stood at 5.3% over one year, again exactly in line with the expectations of economists polled by Wall Street Log.

“Investors currently believe that the next hike will be the last in the cycle and that monetary easing will begin in early 2024,” note strategists at Muzinich & Co.

The ECB, for its part, is completing a new Board of Governors tomorrow, and even if it is not at the same stage of its cycle, the problem is close: to avoid paralyzing a slowing economy – this is particularly true for the Germany – while continuing to fight against rising prices. Remember that the leading economic power in the monetary union has just entered a technical recession.

“While core inflation in the eurozone surprised on the downside in May, underlying price pressures remain strong. The eurozone economy appears resilient, inflation far too high and the labor market exceptionally tight“, notes Konstantin VEIT, portfolio manager at PIMCO, who anticipates that “the European Central Bank (ECB) should raise its key rates by 25 basis points at its June meeting [demain] to bring them to 3.5% and confirm the end of the reinvestments of the asset purchase program (APP).

Published at the end of the morning, industrial production in the Euro Zone was rather pleasantly surprising, rising by 1.0% month on month, against a target of 0.8%. To follow the producer prices in the United States at 2:30 p.m. And, of course, see you at 8:00 p.m. for the Fed’s monetary policy decision and at 8:30 p.m. for the long-awaited press conference.

At midday on the foreign exchange market, the Euro trades against $1.0805 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 breach of which would have consequences in terms of occasional 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). Immediately a bevel (wedge) concentrates the energy of the spot.

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 1.0805 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 1.0901 USD.

The expected return of this Forex strategy is 369 pips and the risk of loss is 96 pips.

CHART IN DAILY DATA