EUR/USD: Persistent bearish signals

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(News Bulletin 247) – Bearish momentum confirmed on the Euro/Dollar currency pair, which ends the week far below a consolidation wedge. The appetite for risk, while the West decided on a new salvo of economic and diplomatic sanctions against Moscow, penalizes the single currency, while the greenback not only keeps its safe haven clothes, but benefits from the tone decidedly more offensive on the part of the Fed.

It is in fact the whole question of the probability of a soft-landing (soft landing) which is posed. “During his speech on price stability, Jerome Powell recognized that the current context did not make a “soft landing” of the economy obvious,” note the strategists of Lazard Frère Gestion in a note on the situation. “In other words, the Fed may need to implement a very sharp slowdown in growth to ease labor market tensions and stem inflationary pressures, which continue to build.”

An offensive tone, but not yet aggressive, which raises questions on this side of the Atlantic as well. “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 a reminder, the ECB is completing a meeting of its Board of Governors next week.

On the political side, the Euro also reflects the political risk, namely the now non-zero probability of seeing the candidate of the Rassemblement National (far right) accede to the Presidency of the French Republic. Admittedly Mrs Le Pen is no longer favourable, as in the past, to leaving the Euro, but it is clear that two visions of Europe are clearly opposed, faced with its main rival for accession to the ‘Élysée, the outgoing President of the second economic power in the Euro Zone, E Macron.

In terms of statistics, the dynamics of German industrial production came out on a monthly basis for February at 0.2%, slightly above expectations. Across the Atlantic, new claims for unemployment benefits in the United States came out in sharp contraction at 166,000 for week 13, beating the target. To follow in priority, on the agenda this Friday, the stocks of American wholesalers at 4:00 p.m.

At midday on the foreign exchange market, the Euro was trading against $1.0870 approximately.

KEY GRAPHIC ELEMENTS

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. Especially since the exit of a bevel from below was fully validated from April 4th to 7th.

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 1.0871 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 1.0940 USD.

The expected return of this Forex strategy is 185 pips and the risk of loss is 69 pips.

CHART IN DAILY DATA

©2022 News Bulletin 247

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