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The Euro/Dollar currency pair was trading at a level close to $1.1120 per euro, at the dawn of a key week for currency traders, who will have “material” on Wednesday, September 18, with the outcome of a historic Fed Monetary Policy Committee. Historic because it will mark the beginning of the monetary easing process by direct action on rates.
There are many issues to remember, since in addition to the “suspense” between a 25 or 50 basis point drop in the remuneration of the Fed Funds, the Fed will provide an update of its economic projections.
“The dot plot, economic projections and Powell’s speech will all be key, but we expect labor market data to ultimately dictate the shape of the cycle. If there are signs of weaker labor demand or increased layoffs, the FOMC will not hesitate to respond forcefully,” comments Xiao Cui, Senior Economist at Pictet Wealth Management.
The dot diagram referred to by the asset management decision maker, called dot plotsis a dot chart published every quarter. Its mechanics are simple: the 12 voting members, under cover of anonymity, record their feelings about the level of Fed Funds for the next deadlines.
Last week, the Governing Council of the European Central Bank ended in surprise with a further loosening of the monetary tap, by 25 basis points. The powerful pan-European monetary institution lowered (slightly), but for 2024, 2025 and 2026, growth.
William Vaughan, Associate Portfolio Manager at Brandywine Global (a subsidiary of Franklin Templeton), continues “to believe the ECB will cut rates to a neutral stance around 2%, probably at a pace of once a quarter, with the next cut in December.”
“However, the new macroeconomic forecasts published were interesting as they continue to overestimate growth over the coming years and will continue to be revised downwards over the next few forecast cycles. The ECB’s rate-cutting cycle could accelerate if growth continues to disappoint,” the asset manager notes.
“Mr Draghi’s recent report highlights some of the key challenges facing the eurozone, but spending more than €700 billion a year, as has been suggested, seems unrealistic given the current political climate,” notes William Vaughan, Associate Portfolio Manager at Brandywine Global. “Without significant fiscal changes, it is difficult to see a major growth catalyst emerging in Europe any time soon.”
In terms of statistics this Monday, the Euro is supported by an overshoot of the target concerning the monthly surplus of the trade balance in the Eurozone, at +15.5 billion euros in July, against +17.0 billion euros in June. At 2:30 p.m., traders will follow the manufacturing index of the New York Fed (Empire State index).
On Friday, traders were informed of a monthly contraction in industrial production in the Eurozone (-0.3%) that was less severe than anticipated (-0.6%), which provides some support to the single currency, in the context of chronic fear over the health of industry in Germany. Across the Atlantic, preliminary data from the consumer confidence index (U-Mich) slightly beat expectations, coming out at 39.0 points on Friday.
At midday on the foreign exchange market, the Euro was trading against $1,1125 approximately.
KEY GRAPHIC ELEMENTS
The Euro/Dollar currency pair, in the form of a very clear pullback (graphic rejection), has returned to contact with an oblique line (in black) which materializes the neckline of a bearish shoulder, head and shoulders pattern. Bearish positions will be reactivated as soon as the spot passes below this graphic level.
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 1.1123 USD. The price target of our bearish scenario is at 1.0907 USD. To preserve the capital invested, we advise you to position a protective stop at 1.1207 USD.
The expected return on this Forex strategy is 216 pips and the risk of loss is 84 pips.
The News Bulletin 247 council
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