EUR/USD: Uncomfortable, the ECB?

(News Bulletin 247) – The Euro fell below $1.10 on Friday, as risk appetite in the financial markets remained thwarted by the lack of significant progress towards obtaining a ceasefire. fire in Ukraine, while the capital Kiev is caught in a vice. The 27 begin their second summit day in Versailles. The now open possibility of an increase in key rates in the Euro Zone by the end of the year will not have enabled the Euro to react positively, as on the one hand the Dollar is more than ever putting on its safe haven, and on the other hand the ECB is embarking on a complex path.

The European Central Bank (ECB) yesterday ended a new meeting of its Board of Governors. By deciding, creating the surprise, to accelerate its program of asset purchases, Ms. Lagarde reopened the way for a possible rate hike by the end of the current year, which had previously come out of the universe of possibilities.

“Faced with such a powerful external inflationary shock, the monetary response does not seem to be the best suited,” analyzes Ronan Blanc (Manager Analyst at Financière Arbevel). “After its 180° turn last month, we expected a little more readability in a particularly anxiety-provoking context. Uncomfortable, the ECB is no longer in control of time. It estimated that the situation on the bond market was not comparable to that of the first days of the pandemic and therefore did not require support from her. Let’s hope that investors do not take her at her word by testing her intentions to intervene.”

“While the eventual exit from negative rates in Europe may seem inevitable, the timing of these announcements raises questions. The path to normalization is therefore now open, but the institution is not commenting on any timetable. It is therefore taking the path of the Fed without having too much of the means (nor the necessity?). Hopefully she won’t regret it.”

To follow as a priority, on the agenda this Friday, the consumer confidence index (U-Mich) in preliminary data at 4:00 p.m. Yesterday the main meeting was that of US inflation, confirmed to be accelerating, at +0.8% month on month for February in the widest basket of products, energy and food included. Enough to further feed the thinking of the Fed, which ends a meeting of its Monetary Policy Committee on March 16. A 25 bps hike is expected.

“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, [les banques centrales] must now integrate an economic slowdown scenario with relatively little visibility, the risk being to raise rates and thus restrict financing conditions while the risks to growth are increasing”, summarizes Thomas GIUDICI (Auris Gestion).

At midday on the foreign exchange market, the Euro was trading against $1.0970 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 6 red bodied candles over the last 6 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 1.0975 USD. The price target of our bearish scenario is at 1.0685 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1122 USD.

The expected return of this Forex strategy is 290 pips and the risk of loss is 147 pips.

CHART IN DAILY DATA

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