EUR/USD: A still abysmal ZEW, the Euro on a technical safeguard

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(News Bulletin 247) – The Euro continued to suffer against the Dollar, now in the immediate vicinity of a technical safeguard at $1.0848 / $1.0850, at the approach of a Board of Governors of the ECB which should highlight, once again, a different approach on this side of the Atlantic.

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.

In any case, and even if it does not help, of course, the uncertain outcome of the presidential election in France, between two fundamentally opposed visions of Europe, does not cause additional pressure at this stage. “It’s the macro, not the Macron, that is driving the view”, in this case bearish, Nomura laughs in a note this morning.

“The ECB may have scheduled further hikes, but rates are still likely to rise faster in the US. The risk is that the ECB is unlikely to validate July pricing of a potential rate hike for the US. moment due to uncertainty about the impact on growth of the conflict in Ukraine.”

It is therefore 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.

If we take a little height, and momentarily leave the two shores of the Atlantic, “China is also increasingly worried about the rise in the number of Covid cases and the increase in restrictions and confinements in the country, which could accentuate the economic slowdown of the second world economy”, for Alexandre BARADEZ (IG France). “It could also increase supply risks and inflation across the world.” The euro is a proven reference barometer for measuring risk appetite on the financial markets.

For the time being, the German ZEW index of confidence in the economy continues to sink, at a rate admittedly a little less strong than anticipated. At -41.0, it is still at a low point since the March 2020 confinements. Professor Achim Wambach, President of the Zentrum fur Europaische Wirtschaftsforschungshed the following light: “The ZEW economic sentiment indicator remains at a low level. Experts are pessimistic about the current economic situation and assume that it will continue to deteriorate. The fall in inflation expectations , which roughly halved the considerable rise of the previous month, gives reason for hope. However, the prospect of stagflation over the next six months remains.

To follow this afternoon the various consumer price indices in the United States, one of the flagship measures of inflation and essential working basis for the Fed in the construction of its monetary policy.

At midday on the foreign exchange market, the Euro was trading against $1.0870 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 considered higher as a guardrail, would release additional selling energy, in a bout of volatility.

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 1.0870 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 1.0935 USD.

The expected return of this Forex strategy is 184 pips and the risk of loss is 65 pips.

CHART IN DAILY DATA

©2022 News Bulletin 247

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