(News Bulletin 247) – In a context of shrinking risk appetite, in the absence of concrete progress in diplomatic negotiations between Russia and Ukraine, the euro broke the lower part of a bevel margin (wedge) of consolidation, sending a bearish signal. Currency traders, in a now chronic inflationary environment, against a background of fear of a slowdown in growth, are trying to gauge the probabilities of the United States and the Euro Zone of entering a lasting period of stagflation. “While inflationary tensions are expected to persist, the ECB will have”, according to Thomas Giudici, co-head of bond management at Auris Gestion, “no other choice than to accelerate the normalization of its monetary policy, probably more quickly than the market anticipates, with a rate hike starting in September.”
As for the Fed, which for its part began its monetary shift earlier, it will be able to rely on good news on the employment front, in the sense that the last NFP report (federal report for March) was of good quality, without however showing signs of aggravation of tensions. This temporarily removes the specter of a price/wage spiral. Thomas Giudici notes that “job creations have once again remained sustained with a strong revision on the previous month. At the same time, the rapid rise in wages continues with a further increase of 0.4% over the month, which brings the increase to 5.6% over the year.While the strengthening of the “price-wage loop” is still the main point of attention, the new increase in the rate of participation in the labor market is good news because it is able to curb this runaway.
Yesterday, the Sentix index plunged to -18 this month, the lowest since July 2020, even as investors tried to come to their senses after emerging from the first lockdown. As a reminder, the Sentix index of investor confidence in the European monetary union is calculated after analysis of a past survey of 2,800 representative investors and analysts, the questionnaire relating to their forecasts over a 6-month horizon. Sentix is ​​an expert firm in behavioral finance. RAS on the other hand on the monthly dynamic of orders to the American industry, emerged perfectly in the target.
This morning, the final data for the “PMI services” (IHS Markit) for the month of March in the Euro Zone came out at 55.6 points, beyond the target. Chris Williamson, Chief Business Economist at S&P Global comments on the latest figures from the PMI survey: the region grew again at a healthy pace in March, extending the rebound in growth that occurred after the slowdown seen in January.”
To follow the American trade balance at 2:30 p.m. and the PMI services (ISM) at 4:00 p.m.
At midday on the foreign exchange market, the Euro was trading against $1.0980 about.
KEY GRAPHIC ELEMENTS
As long as the spot will be priced above $1.10, the oxygen supply is assured. On this side, there is no lack of technical arguments to justify the taking of selling positions. In the immediate term and in the absence of an interesting chart entry point, traders will avoid exposure. Regarding the substantive work matrix, it remains unchanged. The transition phase between February 4 and 23, in the form of a slip without federation, under the 100-day moving average (in orange) is over. The underlying bearish bias aligns with the short term, and the plot of a candle conspicuous by its red body on Thursday 2/24 illustrates the firm grip of the selling side. With 5 red-bodied candles from March 1 to 7, and continued selling mobilization in week 09, the picture remains gloomy. The confirmation of the formation of a bevel (wedge) is in progress. A navigation within it is still to be expected. We will therefore monitor its two terminals, represented in black on our graph. A break in the lower boundary would accelerate the clearances. This has begun, and may continue, with or without pullback.
MEDIUM TERM FORECAST
In view of the key graphic factors that we have mentioned, our opinion is negative in the medium term on the Euro Dollar (EURUSD).
Our entry point is at 1.0970 USD. The price target of our bearish scenario is at 1.0686 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1056 USD.
The expected return of this Forex strategy is 284 pips and the risk of loss is 86 pips.
CHART IN DAILY DATA
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