(News Bulletin 247) – The “scissors” effect we talked about in our previous analyzes on the Euro/Dollar currency pair is confirmed. The prospect of an even faster than anticipated rise in Fed Funds weighs on the single currency, as do fears of an impact of confinements in China on global growth and new developments in the conflict in Ukraine, while around forty powers, including the United States, are meeting this morning in Germany to agree on additional aid to Kyiv. The Euro finds itself trapped by this “scissors” effect: the combination of a loss of risk appetite, which it pays for as a barometer, and the prospect of less “remuneration” in the years to come against to dollars.
The Fed’s rhetoric has particularly strengthened since J. Powell clearly put on the table the option of a 50 basis point hike in Fed Funds, from the next FOMC at the beginning of May, to deal with inflation which no one sees the “peak”. In addition to price dynamics, it will be particularly interesting to measure the evolution of tensions on the labor market, an essential and predictive criterion for wage increases. Verdict at the end of next week with the April NFP report.
On the ECB side, “if Christine Lagarde has declared that a rate hike was likely before the end of the year, the path seems less clear (only the end of the asset purchase program is legible at this stage with discussions on a rise in interest rates during the summer) and still too much of a “dove” approach”, analyzes SÉBASTIEN GRASSET, Member of the Management Board – Director of Asset Management at AURIS Gestion. “Madame Lagarde must indeed find an appropriate pace of monetary normalization (difficult exercise) so as not to weaken the peripheral countries whose rising yields on government bonds are already marking market fears.”
In an interview with Reuters, Martins Kazaks, a member of the Governing Council, said that the ECB could reasonably, given the margin it has, consider two or three key rate hikes this year.
In terms of statistics yesterday, the IFO indicator of the business climate in Germany emerged up to 91.8 points, beating expectations. “This is mainly due to less pessimism in business expectations. Their assessments of the current situation are only marginally better. After the initial shock of the Russian attack, the German economy has shown its resilience,” Clemens commented. Fuest, President of the Institute. A figure that provided no support for the single currency.
To follow in priority, on the agenda this Tuesday, orders for durable goods across the Atlantic at 2:30 p.m. and the consumer confidence index (Conference Board) at 4:00 p.m.
At midday on the foreign exchange market, the Euro was trading against $1.0690 approximately.
KEY GRAPHIC ELEMENTS
Since its sharp exit from a broad consolidation wedge on April 4, the selling side has been confident, with 15 red bodies over the last 18 candles drawn. A break of a fragile intermediate floor at $1.0850, which we characterized as a safeguard, released additional selling energy, in a bout of volatility. This now validated break leads to the locking of new bearish targets.
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 1.0685 USD. The price target of our bearish scenario is at 1.0455 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0801 USD.
The expected return of this Forex strategy is 230 pips and the risk of loss is 116 pips.
CHART IN DAILY DATA
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