(News Bulletin 247) – As the fighting intensifies in Ukraine, the market psychology unchanged on the foreign exchange market, with a Dollar which is strengthened thanks to its attributes of safe haven, which are fully expressed in this geopolitical context , and a Euro which is compressed by the global drying up of risk appetite on the financial markets. Against the backdrop of the determination displayed by the Russian regime to continue the offensive in Ukraine, regardless of the sanctions brandished by the international community, currency traders are naturally wondering about the impact on the respective calendars of monetary tightening by the Fed and the ECB.
Jean-Marie MERCADAL, Director of Investment Strategies and Eric BERTRAND, Deputy Managing Director and Director of Management at OFI AM specify however that “the path towards the exit from the current very accommodating monetary policies had already been traced and the year 2022 will be the start of normalization. The main central banks have thus announced their desire to reduce their balance sheets by reducing the pace of securities purchases until they stop completely within a few months. The American Federal Reserve has already started to reduce its purchases, the Bank of England is about to do so and the ECB will stop its purchases in March.”
But it is the very high-stakes question of the pace of this monetary tightening (the angle of the turn to take a telling image) which is posed, and which will constitute a headache for the great fundraisers of the planet.
“The strongest divergences appear on the question of the level of key rates. Central banks should be more cautious in their monetary tightening in the face of what the market anticipated, insofar as the economic impacts of the war and the associated sanctions are difficult to measure to date, particularly in Europe.”
The inflation-growth equation is upset with the addition of new unknowns.
“This geopolitical crisis is part of a context of generalized price increases and central banks which are just beginning their cycle of monetary normalization”, summarizes Raphaël Thuin, Head of the Capital Markets Strategies activity at Tikehau Capital. “This new uncertainty therefore complicates the question of the return of inflation, in a context where Russia remains a key supplier of natural gas in Europe”.
For Germany alone, the leading economic power in the Euro Zone, as the scheduled end of operation of its last nuclear power plants approaches, dependence is very strong: between 50% and 60% of its consumption comes from Russia.
Once again yesterday, the macroeconomic statistical indicators were relegated to the background. We should nevertheless mention the industrial PMIs in the Euro Zone, in line with expectations (at 58.2 for the IHS Markit data in final data for January) and above expectations for the American manufacturing ISM for January at 58.6.
To follow this afternoon at 2:15 p.m. the results of the survey of the private firm ADP on American employment, which will give a taste of the publication on Friday of the monthly federal report NFP. For the time being, EuroStat has just published the latest inflation figures in the Euro Zone, above expectations, at +2.7% at an annualized rate, excluding a basket of volatile elements (food, energy, alcohol and tobacco ).
At midday on the foreign exchange market, the Euro was trading against around $1.01090.
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 1.1096 USD. The price target of our bearish scenario is at 1.0857 USD. To preserve the capital invested, we advise you to position a protective stop at 1.1216 USD.
The expected return of this Forex strategy is 239 pips and the risk of loss is 120 pips.
CHART IN DAILY DATA
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