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The Euro/Dollar did not find any direction on the eve of a Governing Council which should result, barring a huge surprise, in a reduction in the ECB’s key rates of 25 basis points.
For Pictet WM strategists, “markets will focus on economic projections. Changes in technical assumptions since March argue for marginal changes, but they should be rather hawkish. Projections for GDP growth and Inflation rates for 2024 are expected to be revised slightly upwards, reflecting recent developments. These marginal changes, combined with strong first-quarter wage growth reported last week and strong services inflation in May, will support the hawkish thesis. (hawkish) that a July rate cut is not warranted. This would be consistent with our scenario of a July pause after the initial June cut.”
Forex traders are on their guard after a series of disappointing indicators in the United States. Operators notably took note yesterday of a Jolts report highlighting a greater than expected drop in the number of job offers in April. Job openings rose to 8.059 million in April, compared to a Reuters consensus of 8.355 million openings. To be continued on the employment front, the results of the survey by the private HR firm ADP at 2:30 p.m., before registrations for unemployment benefits tomorrow and the monthly federal NFP report on Friday.
The Fed is naturally very concerned about the state of tensions on the job market and its mechanical effects on inflation via wages.
On this side of the Atlantic this Wednesday, the final manufacturing PMI data in the Euro Zone, at 53.2, hardly differed from the first estimates. Dr. Cyrus de la Rubia, Chief Economist at the Hamburg Commercial Bank, provided the following insights: “The European Central Bank (ECB) is benefiting from the PMI tailwind. The PMI price components for the services sector indicate a slight softening inflationary pressures, making an ECB rate cut on June 6 more likely. Reduced inflation pressures are evident in both costs and sales prices. This development should be explicitly mentioned during the press conference by the president. of the ECB, Christine Lagarde, to counter the unexpected large wage increases announced in the first quarter. However, the PMI price indices do not yet give the green light, because they are unusually high in the context of a rather weak economy. “
At midday on the foreign exchange market, the Euro was trading against $1.0867 approximately.
KEY GRAPHIC ELEMENTS
The currency pair recorded a double top at $1.0885 which further asserts itself as a resistance level, below which the bearish bias can regain its rights. Especially in the event of rapid reintegration of the lower part to an oblique (drawn in black), a major graphic reference point. Immediately the Bollinger bands tighten.
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 1.0867 USD. The price target for our bearish scenario is at 1.0551 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0991 USD.
The expected profitability of this Forex strategy is 316 pips and the risk of loss is 124 pips.
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