EUR/USD: C Lagarde is ultra-dependent on data

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Few, if any, macroeconomic benchmarks since the end of last week for currency traders. It must be said that the news is mainly dominated by American politics. The Euro continued its consolidation phase against the Dollar near $1.0880 per euro.

On Sunday, outgoing US President Joe Biden announced that he was giving up his bid for a second term. His vice-president, Kamala Harris, has declared herself ready to replace him and has received numerous endorsements, including from Joe Biden himself. The Democratic candidate will be chosen at a convention scheduled for August 19 to August 22 in Chicago.

“For the markets, this casts doubt on the bets that almost gave as a given that Donald Trump would be elected, which had given a boost to risky assets, notably due to the potential new tax cuts,” judges Sebastian Paris Horvitz, of LBPAM.

Last week, currency traders digested the ECB Governing Council, which had ended the day before. The meeting ended, unsurprisingly, with a status quo on the key rates themselves, with a review clause at the start of the school year. The ECB had initiated, beating the Fed, in early June, the rate cut. For the time being, the Euro’s rent is on hold.

Konstantin VEIT, portfolio manager at PIMCO, provided the following insights:

“Overall, the ECB expects wage growth to be a key driver of inflation in 2024, although the net impact of labour cost increases on prices is mitigated by a lower contribution from profits. The scenario of a deceleration of domestic price pressures over time is maintained and is based on continued earnings compression and continued declines in unit labour costs, supported by productivity improvements as the economy grows. However, uncertainty around this scenario remains high. Firms could regain their pricing power more strongly as the economy recovers, and productivity losses for European firms could be a longer-term problem than previously thought.” This further illustrates, if need be, the reliance on data from the powerful monetary institution in Frankfurt.

No major macroeconomic figures are on the agenda this Monday. We will have to wait until tomorrow for a return of statistical benchmarks, with for the United States, the manufacturing index of the Richmond Fed and sales of existing homes.

At midday on the foreign exchange market, the Euro was trading against $1,0880 approximately.

KEY GRAPHIC ELEMENTS

In a strong volatility in week 27, the Euro / Dollar currency pair regained the upper part of a bearish oblique line, constituting a short-term oxygen supply. The technical signals are contradictory in the immediate future and do not allow a serene position-taking. In any case, we are suspending our sell lines. We are currently witnessing a test of a resistance level located at $1.0885 / $1.0900. It is clear that the currency pair is now stalling.

MEDIUM TERM FORECAST

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

Our entry point is at 1.0887 USD. The price target of our bearish scenario is at 1.0759 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0956 USD.

The expected return on this Forex strategy is 128 pips and the risk of loss is 68.999999999999 pips.

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