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The Fed’s skip last week, namely a pause in its rate hike process, while at the same time the ECB raised the Euro’s remuneration by a quarter of a point, will have weakened the Dollar, to a low point since May 8 against the Euro. However, the “hawkish” tone adopted yesterday at a hearing before the Finance Committee of the House of Representatives suggests future increases in Fed Funds, from the next due date. At least an increase will be debated.
The semi-annual hearings of the Chairman of the Fed are an opportunity for traders to refine their forecasts of trajectories of federal rates. The hearing will continue this Thursday before the Senate.
The CME tool FedWatch reports a 74.4% probability of a 25 basis point hike at the end of the next FOMC meeting at the end of July. J Powell continues to position himself by fighting inflation, taking note of persistent pressures on prices, maintained among other things by powerful chronic tensions on the labor market.
On the agenda this Thursday, to follow as a priority, the monetary policy decision of the Bank of England, which follows worrying inflation figures, at 1 p.m., weekly registrations for unemployment benefits in the United States at 2:30 p.m. , and the continuation of the half-yearly hearing of J Powell before the Parliamentarians at 4:00 p.m. Eyes are also already on tomorrow’s publication of a battery of PMI activity indicators, the very first estimates for the month of June. The opportunity to gauge the soft landing of the American economy, and to measure the weakening of the German economy, which has technically entered into recession. All consensus for these PMIs are available here.
It will be recalled that by construction, a score lower than 50 evokes a contraction of the sector considered, and conversely, a score higher than the bar of 50 evokes an expansion. These surveys are carried out with purchasing managers, for the propensity of these professionals, by the very nature of their activity, to “feel” the health of business in the coming months. Hence their name PMI (Purchasing Managers Index).
At midday on the foreign exchange market, the Euro was trading against $1,1000 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 1.1007 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 1.1101 USD.
The expected return of this Forex strategy is 222 pips and the risk of loss is 94 pips.
The News Bulletin 247 board
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