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Forex traders continued to digest the messages sent by the Fed and the ECB last week. Messages that showed noticeable changes in communication.
“The Fed made a significant change in communication by indicating that the possibility of rate cuts had been discussed. This appears premature given the resilience of growth, a robust job market and the inflation still high”, judge the OSTRUM AM strategists.
“The ECB, for its part, remained cautious due to the strong increase in unit labor costs. It is awaiting data from the first half of 2024 to judge the evolution of salaries,” they continue before concluding that “a divergence major change has thus taken place between the Fed and the ECB. Despite the ECB’s efforts to contain market expectations, the latter have retained the significant change in communication from the Fed and anticipate rate cuts that are still too aggressive.”
On the statistical side, the main event this Wednesday is the American consumer confidence index (Conference Board), expected to rise to 104.6. A very important indicator for gauging the health of an economy which is structurally very dependent on domestic consumption. After which operators will be able to look forward to the publication of PCE prices on Friday, the Fed’s preferred measure in its assessment of inflation.
Not much to get your teeth into yesterday on the statistical side. Prices in the Euro Zone in November have just been confirmed in final data by EuroStat. Excluding food, energy, alcohol and tobacco, prices increased by 3.6% at an annualized rate.
At midday on the foreign exchange market, the Euro was trading against $1.0950 approximately.
KEY GRAPHIC ELEMENTS
The complete retracement carried out over the whole week gives even more substance to the evolving scenario in tidy wide, between $1.0693 and $1.1012. The latter was validated by the clarity of the inflection made on Friday 15/12. This resistance level ($1.1012) is significantly reinforced.
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 1.0955 USD. The price target for our bearish scenario is at 1.0693 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1071 USD.
The expected profitability of this Forex strategy is 262 pips and the risk of loss is 116 pips.
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