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No surprises contained in the package from the ECB Governing Council yesterday. Result: the Euro / Dollar currency pair stabilizes, on the lookout for employment figures this Friday, at 2:30 p.m.
The meeting ended with a first rate cut of 25 basis points. However, the ECB warned that we should not move too quickly and declare victory too soon in the fight against inflation. The institution has also revised its inflation forecasts upwards for 2024 and 2025, compared to the March projections, which will be likely to fuel debate on a possible break in July.
“The future trajectory of easing, however, remains uncertain, given the positive momentum in recent inflation and activity indicators, as well as cautious comments from the ECB. We expect monetary policy makers to maintain a data-driven approach,” says cautiously Gurpreet Garewal, Macro Strategist, Fixed Income & Liquidity Solutions at Goldman Sachs Asset Management.
“The ECB has room to make further cuts in the second half of the year, as monetary policies will still be perceived as restrictive. The debate is over the likelihood of a third cut in December 2024: the market estimates around 50% the probability of such a reduction”, reacted Mauro VALLE, Head of Fixed Income at GENERALI ASSET MANAGEMENT.
On the other side of the Atlantic, the market will be eyeing the NFP (Non Farm Payrolls) report, the federal report on American employment for the month of May, at 2:30 p.m. this Friday. It will confirm or refute the rather reassuring publications, scattered throughout the week on employment (JOLTS, ADP, registrations for unemployment benefits), publications which have allowed a relative calm on the American 10-year, now in the immediate vicinity of 4.3%.
Concerning this NFP, the unemployment rate is expected to be stable at 3.9% of the active population, average hourly wages up 0.3% and the number of job creations in the private sector (excluding agriculture) at 182,000. .
A less firm report than anticipated could have downward consequences on the yield of the 10-year, and in turn upwards on the EURUSD.
At midday on the foreign exchange market, the Euro was trading against $1.0890 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. In the immediate future, the Bollinger bands are tightening, suggesting an increase in volatility.
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 1.0894 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 1.0961 USD.
The expected profitability of this Forex strategy is 343 pips and the risk of loss is 67.000000000002 pips.
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