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It is time to exercise restraint on the Euro/Dollar currency pair, which, although stabilized, has suffered from a marked downward bias since the middle of July. A lack of appetite for risk explains this, while the prospect of long-term rates remaining “on the plateau”, for a long period, on both sides of the Atlantic is gaining credibility. Forex traders will be able to have additional indices this Wednesday with the August consumer price indices in the United States, as well as the ECB’s verdict on its rates tomorrow. In reality, if a status quo on rates is almost acquired, the comments and especially the adjustments to economic forecasts of the Frankfurt institution will be scrutinized.
In the meantime, currency traders dealt yesterday with a German ZW, which although up slightly, illustrated the depressed feeling of confidence in Europe’s leading economic power. The ZEW at the scale of the entire Euro Zone for its part melted to -8.9, well below expectations.
Andrzej Szczepaniak, for Nomura, notes that “the clock of the economic cycle of the euro zone therefore continues to dance firmly in recessionary territory. For several months, it has been oscillating, on the edge of the precipice between a decline and a recession, before “plunge further into recession due to the weakness of the “current conditions” and “expectations” components of several surveys.”
“The ZEW is not alone in suggesting an imminent recession in the Eurozone. The latest PMI data, in particular, has been materially weak […]which strongly indicates that a recession is likely.
The Fed, for its part, will complete its FOMC (Monetary Policy Committee) next week, and will have to deal with still very strong tensions on the employment market, despite recent timid signs of relaxation.
Regarding market expectations for the August CPIs, which are scheduled for publication at 2:30 p.m. (Paris time), the consensus is for an annualized increase of 3.6% in prices in the most common product base. large (power supply and energy included).
At midday on the foreign exchange market, the Euro was trading against $1.0740 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 1.0734 USD. The price target for our bearish scenario is at 1.0436 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0841 USD.
The expected profitability of this Forex strategy is 298 pips and the risk of loss is 107 pips.
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