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The Euro continued to benefit from a welcome breath of fresh air with the dissipation, for the moment, of the specter of total budgetary paralysis in France, the second economic power in the monetary union. At the same time, the Dollar suffered from risks linked to the situation of two American regional banks.
As a reminder, Sébastien Lecornu said he wanted to submit to the Assembly the possibility of suspending the pension reform until the next presidential election. This was one of the demands of the PS.
The Lecornu 2 government faced two motions of censure yesterday morning, one tabled by the RN, the other by LFI. These two motions were successively rejected, one by 18 votes.
“The debates had to be able to start, and they will start,” Sébastien Lecornu briefly declared. All is not yet won, but in any case the specter of total paralysis is dissipating.
“Budgetary stabilization constitutes a precondition for any reflection on long-term growth drivers. Finding financial and political room for maneuver would make it possible to reorient the debate towards structural priorities such as competitiveness and reindustrialization, particularly in the face of growing Chinese competition. The markets are not signaling immediate panic, but a slow drift in the French situation,” warns Lucile Bembaron, economist at Antares.
“The Moody’s agency should also confirm this on October 24 by downgrading France’s rating. The urgency of providing a clear budgetary trajectory is real: we must not wait for the markets to send a more brutal signal to react. We must free up budgetary space and time for very important substantive issues for France.”
In banking news in the United States, which tensed Wall Street yesterday, two regional American banks explained that they had been victims of fraud on loans linked to funds which had invested in mortgage credit in distressed markets, which fueled concerns in the American credit market.
Based in Salt Lake City, Zions Bancorp lost 13.1% on Wall Street after taking a $50 million writedown on a loan taken out by its subsidiary through its subsidiary California Bank & Trust, while Western Alliance, based in Phoenix, admitted to being exposed to a borrower who failed to provide promised guarantees, explains John Plassard.
Worse still, Western Alliance has recognized exposure to the First Brands Group file, whose recent bankruptcy has already cost several institutions dearly, continues the specialist.
“Two years after the resounding bankruptcy of Silicon Valley Bank (in 2023), new cracks are appearing in the system, this time at the heart of regional banks. The revelations of losses linked to fraudulent loans at Zions Bancorp and Western Alliance Bancorp have revived the specter of financial contagion,” writes John Plassard, investment advisor at Cité Gestion.
“While a seemingly isolated story involving two banks each with a market capitalization of less than $10 billion, the event inevitably prompted comparisons to the regional banking stress that followed the collapse of SVB (Silicon Valley Bank) in March 2023 and raised broader questions about potential credit quality issues after a long period of high rates and expansion private credit”, explains Deutsche Bank.
At midday on the foreign exchange market, the Euro was trading against $1.1710 approximately.
KEY GRAPHIC ELEMENTS
The bullish oblique that prevailed until now (in black on the chart) is now broken, with pullback confirmation. The negative view is offered under this oblique, while the relative strength index collapses. The 20-day moving average (in dark blue) is about to break the trajectory of its 50-day counterpart (in orange) at a significant angle.
MEDIUM TERM FORECAST
Considering the key graphical factors that we have mentioned, our opinion is negative in the medium term on the Euro Dollar (EURUSD).
Our entry point is at 1.1703 USD. The price target for our bearish scenario is at 1.1203 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1801 USD.
The expected profitability of this Forex strategy is 500 pips and the risk of loss is 98 pips.
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DAILY DATA CHART
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