EUR/USD: Is the dollar still a refuge value?

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The backdrop of the pair of flagship currencies remained bruise, the trades giving less and less credit to the hegemonic nature of the dollar, since the start of the trade war waged by Trump against his “business partners”. And even though the gap of “remuneration” stricto sensu, between the two currencies, should benefit the greenback.

“Paradoxically, even though performance premiums should encourage rational positioning on the dollar, technical reactions, often imprints of emotion, take over the fundamental analysis. The dollar thus undergoes the pressure of a transient imbalance where yield considerations are temporarily overshadowed by emotional flows”, explains Nicolas Domont (Optigestion).

“Today, investors favor assets according to criteria such as political stability, budgetary trajectory and strategic readability. The Euro, Swiss franc and gold regain their status of refuge values. The dollar, although it remains central, is no longer without rival.”

German and French budgetary guidelines contribute to this new balance of power.

“In this new market regime, geopolitics prevails over macroeconomics. The US trade policy, unpredictable, directly influences anticipations. Investors’ confidence is now being built more on the clarity of economic policies, the credibility of long -term tax strategies and the ability of governments to keep their budgetary commitments, rather than the sole economic power or the immediate magnitude of their domestic” Domont.

On the Statistical Front, the Bovers learned on Friday of the preliminary data of the “U-Mich” index of consumer confidence across the Atlantic, released slightly above expectations at 61.8. Conjugated with the very good detail dynamics published earlier in the past week, this statistics reveal the health health of the consumer across the Atlantic.

What give even more credit to the scenario of a status quo Monetary at the end of the month, no offense to Donald Trump.

“President Trump has renewed his attacks on Jay (Jerome) Powell at the start of the week, apparently by asking a group of republican legislators if he had to dismiss the president of the Fed. The reason? He considers that interest rates are too high. However, it is far from being obvious that the American economy currently justifies heavy drops of rate, if it is needed,” said J. Sarasin in a note published this Friday.

However, Christopher Waller, one of the FED governors, said it displayed “his preference for a drop of 25 base points (0.25 percentage points) at the end of July” during a speech in New York.

“However, Waller is unlikely to obtain the support of the FOMC (Monetary Policy Committee of the Fed, editor’s note) in July and that is why the movements on the bond market are modest,” said Jim Reid Economist at Deutsche Bank.

Trump keeps calling Jerome “Too Late” Powell to lower the dollar rent. However, the latter justifies its cautious attitude by the inflationary effects still difficult to quantify extreme budgetary and commercial policies of the White House.

To follow at 4:00 p.m. the index of advanced indicators of the Conference Board, to start calm a week which will however be rich in major statistical events, like the PMI activity barometers, in the first estimate for the current month, or the IFO index of the business climate in Germany on Friday.

This week’s agenda will also be animated by the meeting of the European Central Bank (ECB) on Thursday, at the end of which it should maintain its unchanged rates after seven consecutive drops.

“Given the great uncertainty about the outcome of negotiations (on customs duties between the United States and the European Union), we do not modify, at this stage, our economic forecasts or our call for a break during the BCE’s July meeting, followed by two decreases of 25 basis of the key rate, in September and December”, explain the economists of Barclays.

“Although we did not exclude the possibility that the United States and the EU reach a provisional agreement by August 1 which would maintain average customs duties on most EU products to 10%, we believe that it is more likely that improbable that Customs duties on the EU increase from 10%, but without reaching 30%,” they add.

At midday on the foreign exchange market, the euro was treated against $ 1,1660 approximately.

Key graphics elements

While the 1,1674 were broken in a certain volatility, we are waiting to gauge the quality of the spot reaction in contact with the mobile average at 50 days (in orange). So far, this background trend curve has a significant support role.

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 1,1639 USD. The course of course in our Haussier scenario is 1,2464 USD. To preserve the committed capital, we advise you to position a protection stop at 1,1459 USD.

The profitability hope of this Forex strategy is 825 pips and the risk of loss is 180 pips.

Daily data graphics