(News Bulletin 247) – The prospect of an even faster rise than expected in Fed Funds is weighing on the single currency, as is the fear of an impact of the confinements in China on global growth. The Euro finds itself trapped by a “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 most important theme in financial markets is the imminent tightening cycle of global central banks (the Bank of Japan’s yield curve control being the last step to take)”, summarizes Charlotte de Montpellier, Economist at ING . “We don’t expect risk appetite to do well in this environment and that should be reflected in the widening of French spreads versus Germany.”
For the ECB, it is the squaring of the circle, and this in particular because of the greater energy dependence, in particular for the first power of the Euro Zone, on Russia. “The ECB’s problem is what we might call a quadrilemma between inflation, budget deficit, massive indebtedness and national dichotomies: some push for a restrictive policy, others for an accommodative policy and certain combinations seem insoluble… as it stands of the functioning of the Eurozone and the institutions”, for Matthieu Bailly, Deputy CEO and Bond Manager OCTO AM.
The Euro does not even manage to find a solid point of support with the final results of the French presidential election, nor in the publication, however well made, of the IFO index of the business climate in Germany. The indicator published by Information and Forschung came out 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.
On Friday in the statistics chapter in the Euro Zone, in very first estimates for the current month, the services PMI came out at 57.7 and its industrial equivalent at 55.3. Commenting on this flash PMI data, Chris Williamson, Chief Business Economist at S&P Global said: “April saw a two-speed Eurozone economy. The manufacturing sector nearly stagnated due to supply constraints, rising prices and signs of consumer spending hit by war-induced risk aversion, but April also saw industrials suffer as demand shifted from goods to services amid an economic downturn. looser pandemic restrictions, including through a record spike in spending on leisure activities, such as travel.”
At midday on the foreign exchange market, the Euro was trading against $1.0730.
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 1.0726 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 1.0836 USD.
The expected return of this Forex strategy is 271 pips and the risk of loss is 110 pips.
CHART IN DAILY DATA
©2022 News Bulletin 247
I am currently a news writer for News Bulletin247 where I mostly cover sports news. I have always been interested in writing and it is something I am very passionate about. In my spare time, I enjoy reading and spending time with my family and friends.
