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An active barometer of the appetite for risk on the financial markets, the Euro continued its slide against the Dollar, to levels which had not been relevant since December 8th. For its part, the greenback benefited from the warming of yields on 10-year federal bonds, which quite frankly crossed the 4% mark in the wake of a very solid private employment report on Friday.
As a reminder, the unemployment rate, expected to rise to 3.8%, ultimately remained stable at 3.7% of the active population. Problematic for inflation, the average hourly wage accelerated upwards (+0.6% against a target of +0.3%), and above all, job creations jumped, to more than 350,000 over the month of January !
Christopher Dembik, investment strategy advisor at Pictet AM, asks the central question of the moment for currency traders: “It now remains to be seen when the first rate cut will take place.”
“Jerome Powell has clearly ruled out the hypothesis of a decline next March. The money market considers that it will be in May or June. If the 2024 growth forecast for the American economy continues to be revised upwards by analysts, currently at 1.5%, it cannot be ruled out that the first drop will be later, for example in the second half of the year.”
The CME’s FedWatch tool puts the probability of a decline in Fed Funds in June at 94.7%. The Fed will meet its Monetary Policy Council (FOMC) on June 11 and 12, dates to mark in red on the calendar.
It must be said that with very good performances in employment, consumption and investment, the American economy shows particularly strong resilience within OECD countries.
“Despite the ongoing normalization of the post-Covid job market, consumption should remain resilient across the Atlantic,” estimates Jeanne Asseraf-Bitton, Research & Strategy Director. BFT IM.
“If housing shortages keep real estate prices at high levels, core inflation excluding housing has already reached 2.2%, not far from the Fed’s objective. However, the resilience of activity should not encourage it to accelerate its timetable for rate cuts, as the market anticipated at the end of the year. For our part, we forecast a rate cut of 125 basis points this year, a movement which could begin in May- June.”
On the macroeconomic side, there is little to eat this Tuesday. Note slightly disappointing retail sales in the Euro Zone in January (-1.1%), below target.
At midday on the foreign exchange market, the Euro was trading against $1.0730 approximately.
KEY GRAPHIC ELEMENTS
Interestingly technical fact, the 20-day moving average (in dark blue, bearish), is currently breaking its 50-day moving average (in orange, horizontal), a first contact since November 13. The graphic and technical situation is tensing under this trend curve. However, the angle of attack is not very important. This trend curve, the first cited, which is accelerating downward, will conveniently serve as a trailing stop.
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 1.0733 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 1.0857 USD.
The expected profitability of this Forex strategy is 297 pips and the risk of loss is 124 pips.
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