EUR/USD: American inflation under the microscope of currency traders

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Same ingredients, same recipe: same menu! The Euro/Dollar currency pair is suffering, against a backdrop of rising federal government bond yields, with the election of Trump as President of the United States. Election which had been visibly anticipated by a large fringe of currency traders, the already existing movement having increased.

“Inflation expectations and, in particular, real yields have risen since the Fed began cutting rates in September,” commented William Zox, Portfolio Manager, Brandywine Global (part of Franklin Templeton). “I don’t think the Fed will cut rates in December or January, but it will be up to the Treasury market to convey that message to the Fed, rather than the other way around.”

Indeed, “Trump’s potentially expansionary economic policy could encourage the Fed to adopt an even more restrictive posture to counter inflation”, adds Andrea Tueni, Head of Sales Trading at the Saxo Banque France office. Because if inflation expectations are to be revised upwards, it is the anticipation of the shape of the rate trajectory which is mechanically modified.

For its part, the Euro suffered from fears on the commercial and customs levels on the one hand, and geopolitical on the other hand while the United States is still formally chaired by J Biden, but Trump’s diplomatic teams are speaking with their future counterparts. The Euro, a barometer of risk appetite, is particularly sensitive to geopolitical turmoil.

Yesterday, currency traders took note of the ZEW confidence index in the German economy, which fell to 7.4, far from expectations (13.2). “The economic expectations score for Germany was overshadowed by Trump’s victory and the collapse of the German government coalition,” comments President Professor Achim Wambach.

“In the current survey, economic sentiment has worsened – and the result of the US presidential election is probably the main reason. The fact that economic expectations for the United States are clearly increasing, while Economic sentiment towards China and the Eurozone is falling, supporting this view. However, more optimistic voices were heard in the final days of the survey, expecting an improvement. economic prospects for Germany as we approach “Overall, we are seeing a very volatile shift in sentiment right now,” he continued.

To be continued at 2:30 p.m. consumer prices in the United States. In the broadest basket of products, prices are expected to increase by +2.6% in October on an annual basis, compared to 2.4% in September.

At midday on the foreign exchange market, the Euro was trading against $1.0615 approximately.

KEY GRAPHIC ELEMENTS

The currency pair has just come out from the bottom, in intense volatilityof a wedge pattern, which confirms the bearish bias, which is now fundamental. Negative review maintained.

MEDIUM TERM FORECAST

Considering the key graphical factors that we have mentioned, our opinion is negative in the medium term on the Euro Dollar (EURUSD).

Our entry point is at 1.0613 USD. The price target for our bearish scenario is at 1.0239 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0711 USD.

The expected profitability of this Forex strategy is 374 pips and the risk of loss is 98 pips.

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