EUR/USD: The iFO weighs, before the interventions of Powell and Lagarde

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The dollar-safe haven continued to regain color – green, of course – against a euro which contracted like risk appetite, equity markets showing weaknesses, including on indices concentrating growth technology stocks at high PER, the Nasdaq Composite to name it. The publication of the PMIs at the heart of the week, generally disappointing, was not, before the publication this Friday at 4:00 p.m., of revised data from the American consumer confidence index (U-Mich). Traditionally high-impact index, with the Conference Board of consumer confidence, for an economy structurally very dependent on domestic consumption for the creation of national wealth.

The program of foreign exchange traders will be punctuated by the various interventions of the world’s great financiers, gathered for a conference in Wyoming, in the bucolic town of Jackson Hole. This year, the symposium will take place in a context of inflation on the way to being brought under control for the main economic poles of the planet, but without reaching the target rates… Among the various interventions, the cameras will be trained on those of J Powell (4 p.m.) and Christine Lagarde (9 p.m.).

In the immediate future, the pressure on the single currency is reinforced by the publication this morning of the IFO index of the business climate in Germany, the leading economy in the Euro Zone, which has technically entered recession, as a reminder. The index fell more sharply than expected, to 85.7, the lowest since October 2022. The matrix tool developed by the IFO, called “IFO clock of the economic cycle”, shows, in its dynamics, a movement towards the so-called “crisis” zone.

At midday on the foreign exchange market, the Euro was trading against around $1.0790.

KEY GRAPHIC ELEMENTS

The near total retracement of July’s gains does not militate at this stage for a continuation of the advance of the currency pair, without formally ruling it out. This retracement, by its magnitude, weakens the bullish message then delivered over a good part of July. The outcome of the ongoing test of the 50-day moving average (in orange) will be decisive. The bearish message takes shape with the break – now validated – of the 50-day moving average by its 20-day counterpart (in dark blue), at a significant angle. The short position will be kept as long as the last one gravitates below the first one.

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 1.0791 USD. The price target of our bearish scenario is at 1.0551 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0871 USD.

The expected return of this Forex strategy is 240 pips and the risk of loss is 80 pips.

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