(News Bulletin 247) – With tomorrow’s approach to the end of a new ECB Governing Council, the Euro continued to suffer from a much stronger “remuneration potential” for the coming months of the side of the dollar.
If on the side of the Fed, the monetary turn is intended to be offensive, including in the camp of the members reputed to be the most “dovish” (dove, that is to say follower of flexibility in monetary matters), “on the side of the ECB, the message is a little more blurred”, for Thomas Giudici, co-head of bond management at AURIS Gestion. “If the path of tightening is certain, divergences remain between the members. While some believe that an accelerated monetary tightening would have little or no impact on inflation, essentially driven by oil prices energy, the most hawkish members believe, on the contrary, that the ECB’s inflation forecasts are far too optimistic (return to 2% from 2023) and are therefore less patient in the face of the uncertainty generated by the Ukrainian crisis.
However, the latest inflation data, in the sense of CPI, allowed a decline in 10-year Treasuries. In detail, the consumer price index, in data core (adjusted for food and energy, highly volatile data), gained 0.3% in March, month-on-month. So much for core inflation. On the other hand, taking into account the largest basket of products, monthly growth is 1.2%, in line with expectations.
In any case, it is this difference in rate hike trajectory that we will have to continue to monitor carefully in order to work the currency pair as efficiently as possible.
For tomorrow’s meeting, Alexandre BARADEZ (IG France) warns that “Christine Lagarde’s speech will be followed carefully in order to determine the timetable for the end of asset buybacks and for a possible rate hike. The pretext of the war in Ukraine and risks for economic growth could again buy time for a possible monetary tightening within the euro zone.
In terms of statistics yesterday, the German ZEW index of confidence in the economy continues to sink, at a rate that is admittedly a little slower than expected. At -41.0, it still experienced a low point since the March 2020 lockdowns.
To follow as a priority, on the agenda this Wednesday, the producer price index in the United States at 2:30 p.m., as well as crude stocks, still across the Atlantic at 4:30 p.m.
At midday on the foreign exchange market, the Euro was trading against $1.0820 approximately.
KEY GRAPHIC ELEMENTS
Since its clear exit from a broad consolidation wedge on April 4, the selling side has been confident, with 7 red bodies over the last 8 candles drawn. A break of a fragile intermediate floor at $1.0850, which we described yesterday as a safeguard, would release additional selling energy, in a bout of volatility. This rupture is in progress, and requires validation. Our idea nevertheless remains bearish.
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 1.0828 USD. The price target of our bearish scenario is at 1.0686 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0911 USD.
The expected return of this Forex strategy is 142 pips and the risk of loss is 83 pips.
CHART IN DAILY DATA
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