(News Bulletin 247) – The Euro/Dollar continued to reflect the sharp drying up of risk appetite in the financial markets since the beginning of the Russian invasion of Ukraine, with investors abandoning the single currency to focus more on the safe haven dollar. Currency traders are now focused on the big moneymakers on both sides of the Atlantic, whose monetary trajectories are inevitably turned upside down by “an inflationary shock which will make the situation particularly uncomfortable for central banks”, for Thibault Prébay, Director deputy general at Financière Arbevel. Central banks that find themselves “between a rock and a hard place”, dares THOMAS GIUDICI, co-head of bond management at AURIS Gestion.
“Engaged in a phase of monetary tightening to curb inflation, inflation reinforced by the sharp rise in the price of raw materials linked to the geopolitical situation, they must now integrate an economic slowdown scenario with relatively little visibility, the risk being raise rates and thus restrict financing conditions as risks to growth increase.” continues M GIUDICI.
If on the side of the Fed the equation is probably less complex, it is the question of the angle of the monetary turn to come that arises. While a 50 bp increase in Fed Funds was almost unanimous not long ago, an increase of only 25 bp is the scenario clearly envisaged by J. Powell himself during his half-yearly hearing before Parliamentarians. First elements of response on March 16 at the end of the FOMC (Monetary Policy Committee).
“For the ECB, which is holding its monetary policy meeting this week, the situation is more complex”, for T. GIUDICI, “because the zone is more directly impacted by the Russian-Ukrainian situation. If the insinuations (and the non- said) by Christine Lagarde in February were campaigning for a more hawkish ECB, she could finally catch up with the branches of the December decisions which provided for an increase in the APP (to compensate for the PEPP) until the end of the year before a possible first rate hike in 2023.” First elements of response this Thursday at the end of the Board of Governors.
Yesterday in terms of statistics, the Euro Zone investor confidence index (Sentix) came out in freefall at -7.0, the lowest since November 2020. Sentix is ​​an analysis firm specializing in behavioral finance. The indicator produced is calculated after analysis of a questionnaire sent to 2,800 investors and analysts on their economic forecasts for the Euro Zone within six months.
As a reminder on Friday, the NFP report (No Farm Payrolls), the federal monthly report on employment highlighted job creations much higher than expected (+678,000 in the non-agricultural private sector) as well as an even stronger contraction than expected in the unemployment rate, to 3 .8% of the active population. Tensions in the labor market are still strong, and this is one of the sources of future inflation.
At midday on the foreign exchange market, the Euro was trading against $1.0895 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 underlying bearish bias aligns with the short term, and the plot of a candle conspicuous by its red body on Thursday 2/24 illustrates the firm grip of the selling side. With 5 red bodied candles over the last 5 candles, the last one still being drawn, and continued selling mobilization over the past week, the picture remains gloomy. We are reviewing our bearish targets, at $1.0685, then if necessary at $1.0454.
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 1.0894 USD. The price target of our bearish scenario is at 1.0455 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1001 USD.
The expected return of this Forex strategy is 439 pips and the risk of loss is 107 pips.
CHART IN DAILY DATA
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