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A faithful (and reliable!) barometer of risk appetite in the financial markets, the currency pair stopped its hemorrhage on Monday, in the wake of measures by Beijing aimed at reviving the economy, in particular a halving of the “right stamp”, a tax on stock market transactions, going from 0.1% to 0.05%.
“Investors are reacting positively to China’s announced measures to reduce trading taxes and fees, as well as a new request for investment funds and banks, from the party, to buy the market, in order to support the stock market indices”, abounds Vincent Boy, market analyst for IG France.
But currency traders remain upset by the overall still hawkish attitude of the world’s main bankers, who met at a conference in Jackson Hole in the second half of last week.
Jerome Powell did not change his speech or reserve any big surprises during his opening speech at the symposium. The chairman of the Federal Reserve (Fed) US estimated that although it has passed its peak, inflation in the United States “remains too high”. However, hopes of a rate cut by the end of the year have clearly been dashed.
“We stand ready to raise rates further if necessary, and we intend to keep our policy restrictive until we are confident that inflation is sustainably approaching our target,” the banker continued. central, assuring that the Fed maintained its objective of 2% inflation.
On the macroeconomic side, if the program is rather light on the first part of the week, the menu will become abundant tomorrow with the consumer confidence index (Conference Board) and new job offers (JOLTS), the survey ADP on Wednesday, PCE prices on Thursday, and the federal monthly jobs report on Friday. These are all indicators that the Fed will follow closely to measure its impact on the trajectory of prices.
Still on the statistical front, two disappointments to note on Friday: the IFO business climate index in Germany and the US consumer confidence index (U-Mich in revised data), both below expectations. Regarding the first, the index fell more sharply than expected, to 85.7, the lowest since October 2022. The matrix tool developed by the IFO, called “IFO economic cycle clock”, shows, in its dynamic, a movement towards the so-called “crisis” zone.
At midday on the foreign exchange market, the Euro was trading against $1.0805 approximately.
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 1.0808 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 1.0901 USD.
The expected return of this Forex strategy is 257 pips and the risk of loss is 93 pips.
The News Bulletin 247 board
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