EUR/USD: The delicate question of the pace of monetary tightening is posed

(News Bulletin 247) – Unchanged market psychology on the foreign exchange market, with a Dollar which is strengthened thanks to its attributes as a safe haven, which are fully expressed in this geopolitical context, and a Euro which is compressed by the overall drying up of risk appetite in the financial markets. At midday on the foreign exchange market, the Euro was trading against around $1.1175.

The impact on our own Western economies of US and European sanctions against Russia will depend on the duration of the conflict. And by definition vagueness reigns. One thing is certain, however: the monetary calendar is upset and all the cards are reshuffled. However, it is an essential driver of the EURUSD currency pair.

François Rimeu, Senior Strategist, La Française AM does not “expect geopolitical risk to prevent the Fed from raising rates regularly by 25bps at each of its future meetings. That said, we consider that this geopolitical uncertainty decreases the likelihood of a 50bps rally in March.”

“The European Central Bank (ECB) could find itself in a different position” continues the strategist. “This crisis could have a bigger negative effect on European growth, where inflation is not as widespread, than on that of the United States.”

Thomas Giudici, co-head of bond management at AURIS Gestion is even sharper: “monetary tightening [de la BCE] seems already dead in the bud”.

Once again yesterday, the macroeconomic statistical figures were relegated to the background. It should be noted all the same, a missed target for the American trade balance in goods in January, the deficit passing the symbolic bar of 100 billion dollars. Also missed target was the Chicago PMI Industrial Activity Barometer, at 56.3 this month.

To follow the US manufacturing ISM PMI at 4:00 p.m., and construction spending across the Atlantic at the same time. In the meantime, there is little difference to report regarding the manufacturing PMI (IHS Markit) in the Euro Zone for the month of February in final data, at 58.2.

Joe Hayes, Senior Economist at IHS Markit, focused part of his commentary on the indicator’s evolution on inflation: “Inflationary pressures, however, remained very high, with the existence of sellers’ markets providing High demand for inputs, combined with weak supply, has indeed led to a further spike in procurement prices, while manufacturers have raised their prices to pass on their increased costs. The survey data signaled a slowdown in the rise in buying and selling prices compared to January, but inflation rates remained at near-record levels.”

“In addition”, continues Joe Hayes “the conflict between Russia and Ukraine, which threatens the growth of the region, is exacerbating inflationary tensions, the price of a barrel of Brent having soared as soon as the announcement of the first strikes on the territory of Ukraine. Prudent macroeconomic management will be needed to re-anchor inflation expectations without compromising demand recovery too much.”

KEY GRAPHIC ELEMENTS

The transition phase between February 4 and 23, in the form of a slip without federation, under the 100-day moving average (in orange) is over. The bottom-line bearish bias aligns with the short-term, and the plot of a candle conspicuous by its red body on Thursday illustrates the firm grip of the selling side. We are reviewing our bearish targets, at $1.10, then if necessary at $1.0856.

MEDIUM TERM FORECAST

In view of the key graphic factors that we have mentioned, our opinion is negative in the medium term on the Euro Dollar (EURUSD).

Our entry point is at 1.1168 USD. The price target of our bearish scenario is at 1.0857 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1261 USD.

The expected return of this Forex strategy is 311 pips and the risk of loss is 93 pips.

CHART IN DAILY DATA

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