EUR/USD: The Treasuries 10 are heating up, the ZEW is exploding, the spot is falling

(News Bulletin 247) – The Dollar continued to gain ground against the Euro, with the upward aspiration of long-term US government bond yields, the famous Treasuries 10 years, which has been a particularly important market driver since the beginning of the year, not only for the currency pair that interests us here. While they had surreptitiously made an incursion below 1.70 on January 13, here they are already beyond 1.80 (1.814), in a context of persistent tension on prices, in particular those of energy, pushed up by an unbalanced balance of power between supply and demand. The barrel of American light crude exceeded $85 on Tuesday.

While the scenario of three episodes of federal rate hikes over the year 2022 seems certain, since the particularly firm tone of the last Minutes, report of the December FOMC, a scenario with 4 hikes is not excluded. The boss of JP Morgan expects the realization of this scenario: Jamie Dimon anticipates that inflation will remain well above the Fed’s 2% target in 2022 and therefore bets on more than 4 rate hikes from the central bank this year, which will lead to more volatility.

On Tuesday, we will have the valuable return of American benchmarks, both from the point of view of stock quotations and macro and microeconomic publications after a holiday yesterday. The reaction of the Nasdaq Composite will be, faced with the heating of Treasuries, interesting to observe. In terms of figures, check off the NY Fed’s manufacturing index (Empire State) at 2:30 p.m.

For the time being, forex traders have just taken note of the ZEW index of the business climate in Germany, the leading economic power in the Euro Zone. The score (51.7) is well above expectations, allowing the single currency to cushion its decline against the greenback. The “ZEW” jumped nearly 28 points, thanks in particular to a slightly less harsh inflation outlook according to the results of the survey.

ZEW (Zentrum fur Europaische Wirtschaftsforschung) President, Professor Achim Wambach, shed the following light: “The economic outlook has improved considerably with the start of the new year. The majority of financial market experts assume that economic growth will resume in the next six months. It is likely that the economic weakness phase of the fourth quarter of 2021 will soon be overcome. The main reason for this is the assumption that the incidence of COVID-19 cases will decrease significantly by the early summer. The most positive economic expectations include the consumer and export-related sectors and thus a large part of the German economy.”

At midday on the foreign exchange market, the Euro was trading against 1,1390$ about.

KEY GRAPHIC ELEMENTS

We warned in our previous analyzes on the flagship currency pair against the “risk” of a false exit from above, an elongated wedge pattern. We are there, and the expression of this false exit abruptly brought the spot back against a 100-day moving average (in orange) with a sharp bearish bias. Forex traders will be able to gradually resume short positions on the spot EURUSD taking advantage of a much higher quality entry point.

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).

Our entry point is at 1.1390 ​​USD. The price target of our bearish scenario is at 1.1151 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1501 USD.

The expected return of this Forex strategy is 239 pips and the risk of loss is 111 pips.

CHART IN DAILY DATA

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