EUR / USD: The balance of power shifts in favor of the greenback

(News Bulletin 247) – The Federal Reserve saw the pressure increase on it at the heart of the week with the publication of an acceleration in the rise in consumer prices. Rise which mechanically reinforced the probabilities of monetary tightening, by raising rates as of the July deadline. “Bond rates have increased in the wake of the publication of the CPI” observes César Perez Ruiz, Head of Investments and CIO at Pictet Wealth Management.

However, “the yield curve has flattened and real rates have touched new lows. This suggests that investors remain convinced that the inflation surge will be temporary or that they are considering possible monetary tightening on the part of the Fed (justified in the light of rising consumer prices) as a strategic error that would plague the recovery — or both. ” This is what the impressive resistance of so-called growth stocks in the United States suggests at this stage. In the foreign exchange market alone, the advantage gained by the dollar is clear. It was reinforced with the rupture of the floor, already weakened, of $ 1.1530.

In terms of statistics, investors learned about the dynamics of the trade balance in the Euro Zone. The first seasonally adjusted surplus estimates for September showed a significant contraction, to 6.1 billion euros, missing the target by twice. Across the Atlantic, the NY Fed’s manufacturing index (Empire State index) beat expectations by jumping to 30.9, from 19.8 last month.

Focal point this Tuesday, the online meeting between Chinese President Xi Jinping and his American counterpart Joe Biden. Red lines have been clearly defined, such as “the case of Taiwan, supported by the United States while China maintains its discourse of control over the archipelago”, for Vincent Boy (IG France).

To follow US retail sales at 2:30 p.m. An indicator with a strong potential impact on the Dollar, in an economy where traditionally domestic consumption is the main driver of wealth creation.

At midday on the forex market, the Euro was trading against 1,1360$.

KEY GRAPHIC ELEMENTS

We clarified the following on Wednesday, as a reminder: “A break in a fragile support zone at 1.1530 would increase volatility. The working band between $ 1.1530 and $ 1.1675 would then be obsolete.” This zone gave way, with validation by volatility. The current seller is thereby strengthened. Next bearish target locked at $ 1.1150. And this without excluding the possibility of a pullback on the $ 1.1530.

MEDIUM-TERM FORECAST

In view of the key graphical factors that we have mentioned, our opinion is negative in the medium term on the pair Euro Dollar (EURUSD).

Our entry point is at 1.1359 USD. The price target for our bearish scenario is at 1.1151 USD. To preserve the committed capital, we advise you to position a protective stop at 1.1446 USD.

The expected return on this Forex strategy is 208 pips and the risk of loss is 87 pips.

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