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No respite for the Euro/Dollar currency pair which continued to come under increased pressure since the election of Donald Trump as President of the United States, against a backdrop of marked warming in sovereign bond yields across the Atlantic. Even as the CAC and the DAX took a breather this Thursday, the day after American inflation figures met expectations, the Euro broke new support, at its lowest level in more than a year.
Main figure of the day on Wednesday, the CPI (Consumer Price Index) therefore did not constitute a good or bad surprise. On an annual basis, for the broadest basket of products, the price increase reached 2.6%, i.e. inflation in line with expectations, up significantly compared to September (+2.4%). On a monthly basis, excluding food and energy, the increase reached 0.3%.
“We note that the annualized six-month variation in underlying inflation, which Jerome Powell mentioned during the last FOMC (Fed Monetary Policy Committee), is getting a little closer to the 2% target. “This report therefore generally confirms the trend of disinflation in the United States and constitutes an additional element of satisfaction for the Fed”, estimates Bastien Drut, head of strategy and economic studies at CPRAM.
Beyond this factual numerical observation, “inflation is a major concern for American households. The Federal Reserve’s inflation targeting framework is out of step with the feelings of citizens. Donald Trump will seize every opportunity to attack the record of the Federal Reserve in terms of inflation, even if its trade and budgetary policies risk accentuating inflation”, for the strategists at Ostrum AM.
The producer price indices, expected at 2:30 p.m., will provide a complementary view of inflation across the Atlantic, as the subject returns to the fore with the expansionist ambitions of Trump’s political program. The latter will officially take office on January 20.
For its part, the single currency suffered, in addition to the complex global geopolitical equation, from the difficulties of the leading economic power in the Euro Zone, Germany. On Tuesday, 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.
At midday on the foreign exchange market, the Euro was trading against $1.0510 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. Since then, the fragile supports have broken one after the other. 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 1.0508 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 1.0621 USD.
The expected profitability of this Forex strategy is 269 pips and the risk of loss is 113 pips.
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