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Excitement still palpable on the Euro Dollar currency pair, one of the reference barometers of risk appetite on the financial markets, as the conclusions of a Council of Governors of the ECB (this Thursday) approach and a Fed Monetary Policy Committee (FOMC) meeting next week.
The issue is twofold:
1) Refine the rate increase trajectories on both sides of the Atlantic, or if necessary, try to assess whether terminal rates have already been reached.
2) Imagine how high rates will remain for a long time, given the capacity of the main economic centers of the planet to land more or less gently, after long months of very restrictive monetary policy.
“Anything that goes in the direction of a labor market that is difficult to relax, alongside price components that are resilient to the slowdown, worries the markets because it potentially presages meetings of the Fed and the ECB in a still hawkish tone “, comments Alexandre Baradez (IG France).
As for Germany, in any case, already technically in recession, confidence in its economy, the first in the Euro Zone, is contracting, despite a slight lull on the ZEW indicator, published this morning slightly at -above expectations, although in negative territory.
Professor Achim Wambach provided the following insights, following the disclosure of the score of -11.4 this month: “This development puts into perspective the slight improvement in expectations regarding Germany’s economic situation over the next six months. Germany’s brighter economic outlook aligns with a significantly more optimistic view of developments in international stock markets. This is due, at least in part, to the growing proportion of respondents who expect stable interest rates in the Eurozone and the United States. In addition, experts expect further easing of China’s interest rate policy.”
From -12.3 last month, the score rose to -11.4, compared to pessimistic expectations of -15.
Concerning China precisely, the support of encouraging statistics, particularly on price dynamics, suggests that the recovery measures taken very recently by Beijing are already bearing fruit.
To follow with the greatest attention tomorrow the consumer prices in the United States at 2:30 p.m.
At midday on the foreign exchange market, the Euro was trading against $1.0720 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 negative in the medium term on the Euro Dollar (EURUSD).
Our entry point is at 1.0721 USD. The price target for our bearish scenario is at 1.0436 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0831 USD.
The expected profitability of this Forex strategy is 285 pips and the risk of loss is 110 pips.
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