EUR/USD: American PPIs do not hinder the progression of the euro

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The Euro-Dollar progressed yesterday despite the publication of an American production price index (PPI) significantly higher than expectations, reviving fears of the federal reserve in the face of the persistence of inflationary tensions. In July, the PPI jumped 0.9 %over a month, well beyond the consensus ( +0.2 %), with an inflation of the commercial services at +2 %, its fastest pace for several years. This rebound, interpreted as a sign that companies now have their costs on consumers, has reduced the probability of an aggressive rate drop from the meeting on September 16 and 17. The markets now favor a relaxation limited to 25 basic points, against 50 points envisaged by some earlier in the week.

The publication comes on the eve of Jerome Powell’s speech, scheduled for the Jackson Hole symposium. The president of the Fed should specify his reading of the situation there, while the institution is cleared between a slowdown labor market and inflation still above its target of 2 %. Several regional officials, including Alberto Musalem (Fed de St. Louis) and Mary Daly (Fed de San Francisco), have considered that a decrease of half a point was not justified in view of the current data, preferring to wait for the next employment and inflation statistics of August before any major inflection.

On the political level, Donald Trump maintains the pressure on the Fed to lower the rates, while looking for a successor to Powell after his mandate in May. The American president described the current inflation of “perfect” and “magnificent”, minimizing the impact of customs duties, however identified by many economists as a bruising prices factor.

In the euro zone, the latest macroeconomic indicators have brought a more nuanced signal. Industrial production fell 1.3 % in June, a more marked withdrawal than anticipated (-1.0 % expected), in particular due to a sharp drop in Germany (-2.3 %) and a generalized weakening of manufacturing production. Eurostat also revised downwards the increase in May, to +1.1 % against +1.7 % previously. This weakness contrasts with the modest but positive growth of GDP in the second quarter (+0.1 %) and the increase in employment (+0.1 %), confirming that the euro zone is not completely spared by the repercussions of global trade tensions. Investors, however, continue to bet on a slight recovery, supported by a more stable commercial environment and budgetary measures in Germany, which could encourage the ECB to maintain its unchanged rates despite inflation temporarily under the objective.

The euro remains upward oriented, supported by ascending sloping mobile averages and a succession of green candles reflecting a regular buyer flow. In the event of crossing the highest recents, the pair could accelerate towards the psychological threshold of 1.20, a level which would constitute a next major target for operators.

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 1,1682 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 318 pips and the risk of loss is 302 pips.

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