EUR/USD: Foreign exchange reflects lack of appetite for risk

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The Euro remained under pressure against the Dollar in a foreign exchange market which reflected a glaring lack of risk appetite.

Yesterday, the upward revision of the US quarterly GDP (+1.4%), as well as the weekly unemployment benefit registrations which remained very low (233K) were all leading indicators of inflation, before the highly anticipated publication, this Friday at 2:30 p.m., of PCE prices, the Fed’s preferred barometer in its “assessment” of price dynamics.

Excluding food and energy, these prices are expected to increase by 0.1% for the month of May, compared to 0.2% in April. Any significant deviation from this target could cause movement on bond yields and by chance on the currency pair.

The market also digested this week the restrictive comments of the governor of the Federal Reserve (Fed), Michelle Bowman, who declared on Tuesday that “we have not yet reached the point where it is appropriate to lower key rates”, according to Deutsche Bank.

According to the CME Group’s FedWatch tool, a scenario of a federal rate cut in September has a nearly 62% chance of happening (versus 68% at the beginning of the week). The tool, as a reminder, allows you to quantify and analyze the probabilities of changes in federal rates and American monetary policy based on the price of 30-day federal funds futures contracts. It is a valuable tool and complements the dot plot diagram.

At midday on the foreign exchange market, the Euro was trading against $1.0695 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. This test is in progress, in conditions of volatility which challenge. Negative opinion maintainedespecially since the pattern (graphic model) developed resembles more and more a bearish triangle.

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 1.0696 USD. The price target of our bearish scenario is at 1.0436 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0801 USD.

The expected return on this Forex strategy is 260 pips and the risk of loss is 105 pips.

DAILY DATA CHART