EUR/USD: collapse of morale for German investors

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The Pair of Euro / Dollar currencies continued its consolidation movement in small triangle, after a week of very strong volatility, against the backdrop of Drump voltae on the application of customs duties against its commercial “partners”, China in mind.

“The surprise announcement by Donald Trump of a temporary 90-day suspension of so-called” reciprocal “customs duties, accompanied by a 10 % lowering for countries that do not respond by countermeasures[…] has strengthened hopes for gradual appeasement and relaunched discussions on future sectoral negotiations, especially in semiconductors and the pharmaceutical sector. “Comments Thomas GIUDICI, head of bond management.

Not enough to decrease the pressure on the dollar, which is disputed in its role as a currency of absolute reference in international trade.

“However, the uncertainties remain numerous. If the American gesture has been welcomed, it does not sign the end of trade tensions, in particular vis-à-vis China, still targeted by customs duties of 145 %. The American budget file, with a provisional deficit in sharp rise and a worrying debt trajectory, also continues to worry investors. Go back up, while the Fed remains cautious in the face of the risk of an imported inflationary shock. ”

Impossible for the ECB, which brings together the Council of Governors this week, not to comment on the still uncertain consequences of this trade war. “Given the high level of uncertainty, we do not provide for a change in the communication of the ECB: it will remain dependent on the data, with decisions taken meeting by meeting. Other reductions in short -term rate cannot be excluded, although the room for maneuver remains limited, in particular due to the German budgetary plan”, lights Ulrike Kastens, senior Europe DWS economist.

Different “dials” must currently be in good place on the screens of the Cover. Christopher Dembik, investment strategy advisor at Pictet Am lists them:

HAS) “The evolution of the US bond market. Last Thursday, we had a leap of 25 basic points of the rate of return to 10 years in twenty minutes. This is not the first time that it happens. But it is an alert signal which has also forced the Trump administration to put water in its wine concerning customs duties”

B) A possible liquidity operation of the Fed, particularly towards American regional banks which are the weak link known to the American financial system.

C) The refinancing operations of the US Treasury which will serve as a trusted market test. Is investors will be there despite the unpredictability of the Trump administration and fears of devaluation of the dollar?

In the immediate future, and before learning about the “Empire State” index in the American industrial sector at 2:30 p.m., the trades took note of the collapse, even more violent than expected, of the ZEW index of confidence in the German economy, the first in the euro zone, going from 39.8 to -14.

The president of the ZEW Institute, Achim Wambach, has brought the following insights: “The erratic changes in American trade policy weigh heavily on expectations in Germany, which have decreased sharply. It is not only the consequences that the reciprocal customs duties announced could have on world trade, but also the dynamics of their evolution, which have considerably increased the world’s uncertainty. Germany and the euro zone reflect this development. “

At midday on the foreign exchange market, the euro was treated against $ 1,1340 approximately.

Key graphics elements

Consolidation in triangle from 04 to 09 April is now over, the pair of currencies being violently out from the top. The energy released is important, but the ease with which the Eurusd shatters the resistances augurs for a pursuit of height. An accumulation zone between 1,1460 and 1,1674 is identified, as well as a bullish lens $ 1,1970.

Medium term

In view of the key graphic factors that we have mentioned, our opinion is positive in the medium term on Euro dollar parity (Eurusd).

Our entry point is 1,1341 USD. The course of course in our Haussier scenario is 1,1970 USD. To preserve the committed capital, we advise you to position a protection stop at 1,1124 USD.

The profitability hope of this Forex strategy is 629 pips and the risk of loss is 217 pips.

Daily data graphics