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The Euro, a so-called “at-risk” currency, continued its short-term bearish course against the safe haven Dollar, at the dawn of a week which will be rich in major statistical events capable of feeding the Fed’s thinking. Major statistical events include the consumer confidence index (Conference Board), PCE prices, the Federal Reserval’s preferred measure of inflation, and many employment benchmarks (JOLTS, ADP survey, registrations for unemployment benefits and monthly federal NFP report culminating on Friday.
We will start this Tuesday with the first of them, the index of consumer confidence within the meaning of the Conference Board, expected to drop to 116 points. The opportunity to gauge the more or less soft character of the landing of the American economy. “We must be vigilant, warns Thomas Giudici (Auris Gestion), because too disappointing data would lead investors to wonder about the possibility of a more hard landing. From this precarious balance between the slowdown in growth and the decrease in inflation stem from the monetary policies of central banks for the coming months, and therefore the performance of asset classes between now and the end of the year.”
However, the single currency was resisting, in the wake of announcements of stimulus measures from Beijing. These measures aim to revive the economy, in particular a halving of the “stamp duty”, 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.
A slight easing on bond rates is observed, the yield on the ten-year US Treasury note moving to 4.189% against 4.204% on Monday evening, while that on the German Bund with the same maturity is at 2.547% against 2.582% .
At midday on the foreign exchange market, the Euro was trading against $1.0810 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 1.0810 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 1.0909 USD.
The expected return of this Forex strategy is 259 pips and the risk of loss is 99 pips.
The News Bulletin 247 board
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