EUR/USD: Hawks still dominate doves

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The upward bias of the Dollar against the Euro was not thwarted – quite the contrary – by the conclusions of the Fed, which yesterday concluded a meeting of its Monetary Policy Committee. If we had to summarize it in two words, it would be “hawkish pause”. Pause because the Fed Funds were not affected, but hawkish (restrictive, bellicose) because the institution adopted a particularly firm tone, perhaps even more than anticipated. In the process, the yields on 10-year government bonds have risen above 4.40%…

An attitude which is justified by stronger resistance than expected in the American economy after long months of restrictive monetary policy – the forecasts for growth rates and unemployment rates speak for themselves. Furthermore, the famous dot plots campaigned for slightly higher rates, for an even larger majority of members, before stabilization. As a reminder, dot plots are a dot graph showing the new key rate projections from Fed members. Compared to June, the hawkish camp has clearly gained strength.

“The most hawkish message came through the new rate projections: the average projections of Fed members imply a possible further rate hike this year and only 0.50% rate cuts next year, compared to a projection of cuts 2024 rate of 1.00% last June.”, figures Alexandre Baradez for IG France.

On the agenda this Thursday, the decision of the Bank of England, and across the Atlantic, weekly registrations for unemployment benefits and the Philly Fed manufacturing index at 2:30 p.m.

At midday on the foreign exchange market, the Euro was trading against $1.0660 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 an important 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 1.0661 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 1.0741 USD.

The expected profitability of this Forex strategy is 225 pips and the risk of loss is 80 pips.

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