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As key figures on American inflation approach (this Wednesday 2:30 p.m.), and on the eve of the outcome of a new ECB Governing Council, the Euro / Dollar currency pair remained under pressure in the short term, completing a pullback on an oblique base supporting a shoulder, head and shoulders graphic pattern.
“Little suspense in sight at the next meeting of the ECB Governing Council, scheduled for Thursday, September 12. Christine Lagarde should announce, barring any major surprises, a 25 basis point cut in key rates, after opting for the status quo on July 18,” note the strategists at Swiss Life AM.
“On the domestic European front, political tensions continue to create a risk of damaging instability and increased volatility for the markets, but the Frankfurt-based monetary institution remains on the lookout to intervene if necessary. Vigilant as to the evolution of the macroeconomic data available over the coming months, the ECB should be comforted by the American Federal Reserve (Fed) in its strategy of monetary easing.”
The German economy, traditionally driven by its industry, is the focus of concern and should support the ECB’s decision. “Growth is worrying in Europe, particularly in Germany, and inflation is showing sufficient signs of moderation,” adds Emmanuel Auboyneau, Associate Manager at Amplegest. “The rate cut cycle should therefore continue, especially since it will now coincide with the one that the US Federal Reserve should initiate.”
On the American side, the Fed is in fact finishing a new meeting of its Federal Open Market Committee (FOMC) on September 18. A historic meeting that will mark the beginning of the monetary easing process by direct action on rates. “If a 25 bps cut in key rates seems to be a done deal (a first since the plateau reached more than a year ago), is it possible that the latest economic data will allow the American institution to proceed with a 50 bps cut?”, wonders Thomas Giudici, who considers that “the latest employment data are not bad enough to justify an overreaction by the Fed even though they confirm the slowdown in the labor market.”
On Friday, the monthly report on private employment in the United States, without being catastrophic, revived doubts, to the point of weighing heavily on Wall Street, more particularly on the technological side of the stock market.
Because if the unemployment rate remains stable at 4.2% of the active population, the number of job creations in the private sector (excluding agriculture) comes to 142,000, well below the target. So, of course, the result is not as bad as in July (114,000), but it rekindles the debate on the nature of the landing of the American economy. In other words, the soft landing, and a fortiori the kiss landing, is no longer so relevant. Finally, the average hourly wage, at +0.4%, exceeds the consensus.
At 2:30 p.m., the consumer price indices (CPI) in the United States are to be followed. The index is expected to slow down very significantly to 2.5% on an annual basis, in the broadest product base. A figure that will be followed all the more closely because it will support scenarios of a 25 or 50 basis point decline at the end of the next FOMC on September 18.
At midday on the foreign exchange market, the Euro was trading against $1,1040 approximately.
KEY GRAPHIC ELEMENTS
A pattern (pattern) chart shoulder, head and shoulders, on a slanting neckline basis, is emerging, even as the relative strength RSI indicator sends negative messages.
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 1.1040 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 1.1135 USD.
The expected return on this Forex strategy is 281 pips and the risk of loss is 94.999999999998 pips.
The News Bulletin 247 council
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