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The reliable barometer of risk appetite represented by the Euro turned violently downward against the Dollar, in the wake of a particularly firm tone adopted by the major central bankers. Last blow to date, that of the Bank of England, which surprised by increasing its key rates twice as much as anticipated, by 50 basis points therefore, in reaction to particularly worrying inflation figures.
The Bank of England thus surprised the markets, following in the footsteps of the Bank of Norway, against a background of persistent inflation. Core inflation, that is to say “cleaned” of volatile elements, exceeds 7% in the United Kingdom.
Nomura sees “now the Bank [d’Angleterre] tighten its rates in August, September and November to reach a peak of 5.75%. Markets are expecting a peak of around 6.10% early next year.”
“The bigger risk, however, is that, in the words of Milton Friedman (and more recently Silvana Tenreyro), the Bank will end up being ‘the idiot in the shower’ and raising rates too much, which would require a faster correction in the event of a recession.”
In terms of statistics, while awaiting the battery of PMI indicators this Friday (the macroeconomic high point of the week), operators took note yesterday of the weekly registrations for unemployment benefits in the United States, in line with expectations, at 264,000 new units.
In the immediate future, traders have just learned of the very first estimates of PMI activity indicators in Europe for the month of June, and it is clear that all targets have been missed. Especially, the German industrial component stands at 41.0, the lowest since… May 2020. The services component in France, expected at 52.2, collapses to 48.
Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented on the survey: “After two consecutive quarters of contraction, the risk of a further fall in eurozone GDP in the second quarter increased in June. , due in particular to weak activity in the services sector in France. bearish curve of the PMI Composite index announces a difficult second half for private companies in the euro zone, characterized by a general decline in order books over the coming months.
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).
To follow equivalent figures for the United States at 3:45 p.m. The industrial component is expected at 48.6, that of services at 53.9.
At midday on the foreign exchange market, the Euro was trading against $1.0860 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 1.0862 USD. The price target of our bearish scenario is at 1.0551 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 311 pips and the risk of loss is 69 pips.
The News Bulletin 247 board
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