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The Euro/Dollar currency pair remained below its 50-day moving average (in orange), the day after the Fed’s monetary status quo, and on Thursday approaching the ECB’s verdict on rates. What can we expect for the outcome of this Board of Governors, when Germany’s entry into technical recession coincides with a persistent rise in prices?
“Inflation in Europe is still too high and decelerating only too slowly. The rate hike cycle is probably not over and we should have a 25 basis point hike this month”, slice Emmanuel Auboyneau, Managing Partner of Amplegest, rallying to a large majority of stakeholders.
“But the movement will soon stop because too high rates would have negative consequences on the economy and the debt of many countries in the zone. So be careful that the remedy is more harmful than the disease. A word of caution should probably be held by Christine Lagarde.”
Verdict at 2:15 p.m. for the rates and at 2:45 p.m. for the press conference.
Across the Atlantic, the Fed’s FOMC ended yesterday, unsurprisingly after the publication of inflation the day before, with a status quo on key rates, which remain within a band between 5 and 5.25%. On the other hand, the tone will have been firm, even particularly firm at the press conference. It should be noted, to summarize, that the monetary institution headed by J Powell foresees two more increases of 25 bp in 2023, raises its underlying inflation forecasts (core), by postponing the idea of a first rate cut indefinitely.
Recall the consumer price indices published on Tuesday. In detail, 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.
“A pause in rate hikes must be implemented with caution,” warns Christian Scherrmann, US Economist DWS Group. “In other words, care must be taken that inaction does not thwart past efforts to slow economic activity. There are also lessons to be learned from previous meetings, in which commentators saw Jerome Powell commit some rather dovish communication blunders.”
On the macroeconomic agenda this Thursday, to follow in priority the monetary policy decision of the ECB at 2:15 p.m. and the press conference of the institution at 2:45 p.m. Across the Atlantic to follow at 2:30 p.m. the Empire State manufacturing index, retail sales and weekly unemployment benefit registrations. To follow at 3:15 p.m. the monthly federal report on industry.
At midday on the foreign exchange market, the Euro was trading against $1.0830 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) parity.
Our entry point is at 1.0827 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 1.0931 USD.
The expected return of this Forex strategy is 391 pips and the risk of loss is 104 pips.
The News Bulletin 247 board
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