EUR/USD: the euro benefits from the publication of American inflation

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The euro appreciated slightly yesterday and continues its bullish race today, carried by a set of macroeconomic and political factors. Yesterday started in Europe with the publication of an ZEW index of economic feeling in Germany significantly lower than expectations, at 34.7 in August against 52.7 in July and a consensus at 39.5. The index measuring the current situation also fell, at -68.6, reflecting a very degraded perception of the economic environment across the Rhine. Despite this negative signal, the single currency remained firm, supported by the generalized weakness of the dollar.

On the American side, consumer prices (ICC) in July increased by 0.2 % over a month, after +0.3 % in June, and 2.7 % over one year, online with expectations. The underlying inflation, excluding food and energy, accelerated at 3.1 % over a year, compared to 2.9 % previously. These data, deemed moderate by investors, strengthened the anticipations of a monetary relaxation of the Federal Reserve in September. According to the Fedwatch tool of the CME, the market now attributes more than 94 % probability to a drop of 25 base points at the next meeting. Several houses, including Nomura, JP Morgan and Citigroup, confirm this scenario.

Politically, Donald Trump’s statements have helped weaken the greenback. The American president has multiplied criticism of Jerome Powell, going so far as to evoke legal action against the Patrone of the Fed, and implicated the CEO of Goldman Sachs on his economic forecasts. These positions reinforce the fears of a politicization of economic and financial institutions.

In the background, the market remains attentive to geopolitical tensions, especially in Eastern Europe, and the dynamics of commercial negotiations. If these elements have not resulted in immediate movements on EUR/USD, they constitute an indirect support factor for single currency in a context of weakening the dollar.

The European currency continues to grow to the $ 1.20 zone. After an accumulation phase of several sessions, the euro validated an upward exit, confirming the bottom up to the bottom. Maintaining above 1.1680/1,1700 would strengthen the potential for short-term increase, with a first objective at 1.18 then 1.20, major psychological threshold. Conversely, a return under 1.16 would weaken the very short -term positive bias.

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 1,1712 USD. The course of course in our Haussier scenario is at 1.2000 USD. To preserve the committed capital, we advise you to position a protection stop at 1,1380 USD.

The profitability hope of this Forex strategy is 288 pips and the risk of loss is 332 pips.

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