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This week is definitely key for the Euro/Dollar currency pair, as it concentrates major indicators, notably American ones, able to clearly feed the Fed’s thinking for the construction of its monetary policy for the months to come. Indicators which relate to the elements of the same inflationary equation: consumption, prices, employment and growth.
At this stage, the drop below expectations in the consumer confidence index (Conference Board), as well as job openings (JOLTS) and the ADP survey have militated for a soft landing for the American economy, c ie the ideal scenario. But the nervous expectation of PCE prices, this Thursday at 2:30 p.m. and especially the federal NFP employment report tomorrow, should invite us to remain on the defensive, and therefore to remain cautious on risky assets, a family of which the Euro is a prominent member.
“Federal Reserve Chairman Jerome Powell gave a strong speech last Friday in Jackson Hole, while saying that the Fed would proceed with caution to counter inflation deemed too high”, slice César Perez Ruiz, Head of Investments and CIO at Pictet Wealth Management. “The evolution of prices will therefore determine the path of monetary policy.”
For the time being, currency traders have just taken note of the first estimates of consumer prices in the Euro Zone, at +5.3% at an annualized rate for the month of August, perfectly on target.
At midday on the foreign exchange market, the Euro was trading against $1.0870 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 maintained 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 1.0867 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 1.0951 USD.
The expected return of this Forex strategy is 316 pips and the risk of loss is 84 pips.
The News Bulletin 247 board
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