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The mirror of risk appetite on the markets, represented by the Euro, continued to ebb against a Dollar which regained its attributes as a safe haven, in the context of growing fears about the health of the world economy, fears focused particularly on two giants, Germany and China. All against a backdrop of persistent firm oil prices, since Saudi Arabia decided to maintain its production cuts for three months.
“For central banks, rising oil prices are complicating the picture, although as it stands we still think the Fed and the ECB (US Federal Reserve and European Central Bank) should give each other time and maintain their rates unchanged by the end of the year”, judge Xavier Chapard of LBPAM.
Hence increased pressure on long rates, which weighs directly and heavily on so-called risky assets, i.e. those which are less popular in the event of severe weather warnings, unlike safe-haven assets ( Dollar, gold, among the most emblematic).
It is therefore in this context that the US Federal Reserve published its Beige Book, which revealed more modest economic activity in the United States in July and August with prospects of less strong pressure on wages in the future.
A barrel of Texan light crude was touching $87 when we were writing this analysis, and the American 10-year (Treasuries 10 yrs) was flirting with 4.28%.
In terms of statistics yesterday, RAS concerning the July monthly deficit of the US trade balance at 65 billion dollars, close to expectations. The PMI ISM Services came out up at 54.5, significantly above the target. To follow the weekly registrations for unemployment benefits in the United States at 2:30 p.m.
At midday on the foreign exchange market, the Euro was trading against $1.0710 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. The advantage of this investment plan is the discipline it induces by nature.
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 1.0703 USD. The price target of our bearish scenario is at 1.0436 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0801 USD.
The expected return of this Forex strategy is 267 pips and the risk of loss is 98 pips.
The News Bulletin 247 board
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