(News Bulletin 247) – The Euro/Dollar, one of the most reliable barometers of risk appetite in the financial markets, remained under strong pressure on day 8 of the war in Ukraine. Faced with fears of a global economic slowdown, at the worst time in full post-Covid recovery, J. Powell before the American Parliamentarians, wanted to reassure about the rate of rise in federal rates, suggesting that the rise would probably be less strong. provided that. The way is thus open to an increase of 25 bps, instead of 50 bps for this next deadline.
The Fed will end a new meeting of its Monetary Policy Committee (FOMC) on March 16.
It must be said that this question of the potential slowdown in global growth, in a high inflationary context, energy in mind, completely reshuffles the cards for the big money-makers of the planet.
“In this context, central banks should be more cautious and more accommodating, particularly in Europe, in the face of the risks weighing on growth. At the same time, inflation therefore appears to be less under control knowing that it could increase significantly case of an acceleration of sanctions on the energy front, again leading to the risk of a slowdown in activity”, explain Jean-Marie MERCADAL, Director of Investment Strategies and Eric BERTRAND, Deputy CEO and Chief Investment Officer at OFI AM.
And this even though the horizon is particularly foggy. “A stalemate and an aggravation of the conflict could lead to a phase of economic slowdown coupled with high inflation raising fears of a period of stagflation. Central banks are not finished being at the center of the markets”.
Thomas Giudici, co-head of bond management at AURIS Gestion, agrees: “What about the monetary policies of the central banks? If, on the side of the ECB, monetary tightening seems already dead in the bud, the question is more delicate for the Fed. Because while it’s still hard to imagine rate hikes in the current environment, the fight against Putin will be inflationary…”
On inflation precisely, EuroStat yesterday published the latest consumer prices in the Euro Zone, above expectations, at +2.7% at an annualized rate, excluding a basket of volatile elements (food, energy, alcohol and tobacco ). Across the Atlantic, operators took note of the results of the survey by the private firm ADP on American employment in February. This “taste” before the results of Friday’s Non Farm Payrolls report shows job creations in the private sector (excluding agriculture) of around 475,000, well above the target.
Regarding the main statistical release of the morning, at 55.5, the IHS Markit synthetic service PMI for the whole of the Euro Zone came out very close to expectations. The “composite” data (industry + service) are mechanically available for February, at 55.5. Chris Williamson, Chief Business Economist at IHS Markit, provided the following insights: “Although it is still too early to assess the consequences of the conflict, increasing risk aversion as well as new sanctions will most certainly impact the business outlook. , thus hampering the post-pandemic recovery. The conflict in Ukraine, which heightens inflationary risks and darkens the outlook for activity, thus adds to the headwinds that households and businesses were already preparing to face and makes the delicate task even more difficult of the ECB to control inflation while supporting a solid economic recovery.
To follow across the Atlantic this Thursday, weekly registrations for unemployment benefits at 2:30 p.m. and the PMI Services (ISM) at 4:00 p.m. To also follow very attentively, the continuation of the half-yearly hearing of J. Powell, in front of the Parliamentarians at 4:00 p.m.
At midday on the foreign exchange market, the Euro was trading against $1,1080 about.
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 1.1085 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 1.1176 USD.
The expected return of this Forex strategy is 228 pips and the risk of loss is 91 pips.
CHART IN DAILY DATA
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