(News Bulletin 247) – The main meeting for forex traders, marked in red for a long time on their agendas, is naturally the outcome this Wednesday of a key monetary policy meeting, the first “FOMC” since the start of the war in Ukraine. “The Fed’s rate hike is expected. But investors will remain alert to the central bank’s sentiment toward inflation and the economy, as well as its projections for future rate hikes,” Eric Lafrenière, US Equity Manager at Richelieu Gestion. An increase of 25 basis points, clearly announced by Powell himself in a semi-annual hearing before the Parliamentarians, is indeed acquired, and an increase of 50 basis points at once would constitute an extraordinary surprise.
Verdict at 7:00 p.m. for the Fed’s monetary policy decision, rates and updated economic forecasts, and at 7:30 p.m. for the press conference. But beyond the simple question of the beginning of this monetary shift, traders want more visibility on the trajectory, or at least the intentions of the Fed in the context of the Russian invasion of Ukraine, whose impacts on the prices of certain raw materials, whether energy, food or technology, are major.
“Despite inflation of 7.9% observed in February in the United States, the Fed is maintaining an ultra-accommodating monetary policy.” notes Vincent Boy for IG France. “Indeed, Jerome Powell is trying by all means not to impact the markets too negatively, which seems to remain the main factor in the evolution of monetary policy. The latter has remained very accommodating so far, despite the economic rebound observed. in 2021 and now with fears of a recession looming, the US Federal Reserve Chairman is stuck between letting inflation pick up or causing markets to fall sharply in anticipation of a global economic slowdown and a recession.”
A headache for the Fed, which must act without cooling the markets. “A timetable could be announced on the basis of 6 to 7 rate increases in the year, while specifying that the evolution of the international situation could require adjustments. A speech combining resolution and pragmatism…”, for Emmanuel Auboyneau, Managing Partner of Amplegest.
In terms of statistics, forex traders had to digest the drop in the confidence indicator in the German ZEW economy yesterday. The indicator, often called in its contracted form “ZEW”, emerged this month in free fall, at -39.3, the lowest since March 2020, that is to say since the movement of fear caused by the spread of Covid-19. “The war in Ukraine and the sanctions against Russia are significantly clouding Germany’s economic outlook. The collapse of economic expectations is accompanied by an extreme rise in inflation expectations. Experts therefore expect stagflation coming months. The deteriorating outlook affects virtually all sectors of the German economy, but in particular the energy-intensive sectors and the financial sector,” commented the ZEW Chairman (Zentrum fur Europaische Wirtschaftsforschung), Professor Achim Wambach.
On the other side of the Atlantic, the producer price index relieved the markets somewhat, rising less sharply than expected, by 0.8% for the month of February, for the widest basket of products, in pace monthly.
To follow in priority, on the agenda this Wednesday, retail sales across the Atlantic at 1:30 p.m.
At midday on the foreign exchange market, the Euro was trading against $1,1000 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 revising our downside targets at $1.0685.
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 1.1008 USD. The price target of our bearish scenario is at 1.0686 USD. To preserve the capital invested, we advise you to position a protective stop at 1.1105 USD.
The expected return of this Forex strategy is 322 pips and the risk of loss is 97 pips.
CHART IN DAILY DATA
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