EUR/USD: Copious statistical, macroeconomic and monetary menu this week

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Highly correlated – even more than usual – with the equity markets on both sides of the Atlantic, the Euro attempted a timid rebound, without conviction, against the Dollar, within a marked downward trend, since the July 18 reversal candle. Risk appetite remains compressed by growing doubts about the ability of the main economic centers to achieve their soft landing after long months of restrictive monetary policy.

“Investors increasingly anticipate high Fed rates for a long time, but no longer seem to expect an increase from the central bank,” summarizes Vincent Boy (IG France), who notes that “the prospect of a “soft landing”, confirmed again by Janet Yellen this weekend”, however, constitutes a source of support. On this side of the Atlantic, however, the economic difficulties in Germany, which has technically entered into recession, will complicate the task of the ECB, which will conclude a meeting of its Council of Governors on Thursday.

“The ECB will present its new perspectives at this meeting”; warns Martin Moryson, Chief Economist Europe DWS. “It will have to revise its economic outlook slightly downwards, but its inflation expectations significantly upwards. This will be an opportunity to take the final step and signal to all observers, markets and consumers, that the ECB is truly serious in its fight against inflation. It could then wait and watch inflation rates normalize (slowly).”

For its part, the European Commission has lowered its growth outlook for the euro zone. The CAC 40 is up 0.5% this Monday at mid-session. The European institution based in Brussels is more pessimistic about its economic growth forecasts for the euro zone in 2023 and 2024. It expects 0.8% and 1.3% respectively (compared to 1.1% and 1.6% respectively). previously) of growth for the current year and the next, on the basis of Germany entering recession in 2023.

The inflation outlook is also revised downwards for 2023, Brussels estimates that consumer prices should increase on average by 5.6% in 2023, compared to 5.8% announced in May when they should reach 2.9 % in 2024.

In terms of statistics, if the week starts slowly on this point, the calendar will expand tomorrow with the ZEW of confidence in the German economy, Wednesday with American inflation, Thursday with American retail sales, and the new forecasts economic figures from the ECB, and Friday with American consumer confidence (Conference Board) on Friday.

At midday on the foreign exchange market, the Euro was trading against $1.0725 approximately.

KEY GRAPHIC ELEMENTS

The almost complete retracement of July’s gains does not militate at this stage for a continuation of the advance of the currency pair, without formally excluding it. This retracement, by its magnitude, weakens the bullish message then delivered over a good part of the month 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 retained as long as the latter gravitates below the first. The advantage of this investment plan is the discipline that it inherently induces.

MEDIUM TERM FORECAST

Considering the key graphical factors that we have mentioned, our opinion is positive in the medium term on the Euro Dollar (EURUSD).

Our entry point is at 1.0726 USD. The price target for our bullish scenario is $1.0436. To preserve the capital invested, we advise you to position a protective stop at 1.0821 USD.

The expected profitability of this Forex strategy is 290 pips and the risk of loss is 95 pips.

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