EUR/USD: Forex traders digest the hawkish tone of central bankers

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The Euro/Dollar currency pair was digesting a very important sequence, marked last week by the monetary policy meetings of the ECB (Board of Governors) and the Fed. Beyond the hawkish tone adopted by the two monetary institutions, Raphaël Thuin, Director of Capital Markets Strategies at Tikehau Capital, retains four main points:

“Central banks are not done with their tightening cycle, and the announcements of the week clarify this point if necessary: ​​further rate hikes are to be expected.

Also, it would be misplaced to think that central banks are easing pressure simply because the rate hike cycle is nearing its end : rates will be kept at high levels, which in itself constitutes a restrictive policy, and the process of reducing the size of their balance sheets, a significant event with uncertain repercussions, has only just begun.

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 labor costs. The decline in inflation will therefore take time, as reflected by the announcements of the Fed and the ECB, which do not anticipate a return to their 2% target before 2025.

Patience is therefore in order, the central banks are not ready to claim victory in their fight against inflation.”

In the macroeconomic chapter on Friday, RAS on the final consumer price data in the Euro Zone, which came out in line with the first estimates for the month of May, up 5.3% at an annual rate, excluding food, energy, alcohol and tobacco (core data ). Good surprise, however, on the preliminary data of the US consumer confidence index (U-Mich), which came out at 63.9, significantly above expectations.

On the macroeconomic agenda this Monday, to follow the NAHB index of the American residential market at 4:00 p.m. The week which begins slowly on this point, especially since Wall Street will remain closed (Juneteenth – day of commemoration of the end of slavery). But the agenda will not fail to thicken throughout the week, with in particular IPPs, US housing starts. The week will end in a high point with the flash PMI activity indicators, ie their very first estimates for the current month.

At midday on the foreign exchange market, the Euro was trading against $1.0925 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 1.0924 USD. The price target of our bearish scenario is at 1.0785 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 139 pips and the risk of loss is 81 pips.

CHART IN DAILY DATA