EUR/USD: Ms Lagarde maintains a restrictive monetary policy

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The ECB’s decision to raise its key rates by 25 bp (a decision widely expected), but above all the prospects for additional increases, and the particularly hawkish adopted by Mrs. Lagarde yesterday at the end of the Board of Governors, allowed the Euro to regain some oxygen, returning to levels dating from May 11 against the Dollar.

“Mrs. Lagarde was very explicit on this point. [signaler un nouveau resserrement]and said it was “very likely” that rates would be raised again in July, given the outlook for high inflation,” said Francesco Pesole, Economist at ING.

It was this prospect, even as the Fed embarked on a (short) pause in rate hikes, that boosted the flagship currency pair.

“A cycle of disinflation is certainly opening up to us, but underlying inflation remains problematic, particularly in Europe, and seems to be fueled by a still robust labor market and high wage costs. The fall in inflation will therefore take time, as reflected by announcements from the Fed and the ECB, which do not anticipate a return to their 2% target before 2025.” analyzes Raphaël Thuin, Director of Capital Markets Strategies at Tikehau Capital.

In terms of statistics, which took a back seat despite a busy schedule, forex traders took note of retail sales, in line with data expectations core, the Philadelphia Fed’s manufacturing index, in the target at -13.7, the New York Fed’s manufacturing index which returns in a welcome way and into positive territory, and weekly jobless claims, at 262,000 new units, the highest since May 11. Slight disappointment on the volume of industrial production (-0.2% monthly), but not on the production capacity utilization rate (79.6%).

For the time being, RAS on the final consumer price data in the Euro Zone, came out in line with the first estimates for the month of May, up 5.3% on an annual basis, excluding food, energy, alcohol and tobacco (core data ). We are carefully monitoring this afternoon the preliminary data (U-Mich), the level of consumer confidence and inflation forecasts.

At midday on the foreign exchange market, the Euro was trading against $1.0950 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. It just made a foray above, with no formal sign of a bullish reversal.

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 1.0946 USD. The price target of our bearish scenario is at 1.0693 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1005 USD.

The expected return of this Forex strategy is 253 pips and the risk of loss is 59 pips.

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