EUR/USD: Powell kills the suspense, Lagarde calls his troops to order

by

(News Bulletin 247) – While the satisfactory start to the quarterly ball of the major European groups catalyzed a technical rebound of the Euro against the Dollar in the first part of the week, the reference polarity (negative) regains its rights under the influence still significant in the difference in tone, attitude and monetary strategy of the major central banks on either side of the Atlantic. During a debate yesterday, for the Spring Days of the IMF and the World Bank, J. Powell, Chairman of the Fed, definitively killed a relative suspense around the outcome of the next FOMC. The powerful financial institution, unless there is an extraordinary surprise, will raise there by 50 basis points all of a sudden, its Fed Fundsto mark the occasion.

For its part, the European Central Bank, which is absolutely not at the same stage of the negotiation of its monetary shift, in particular because of the greater dependence on Russia for its energy supplies. “Remember that any increase of 10 dollars in the price per barrel generates a negative impact of around 0.2% growth according to the main models”, notes Jean-Marie MERCADAL, Director of Investment Strategies OFI Holding. “From this point of view, it is the Euro zone which seems the most vulnerable, especially in the current environment due to its greater dependence on Russia. Growth in 2022 is now expected there at 2.9% against 4 .2% at the start of the year. The United States seems more resilient with 3.3% expected against 3.9% initially. It seems that these revision movements have only just begun.”

In this context, Ms. Lagarde is faced with an increasingly complex equation, and must “contain” the most “hawkish” voices within her own institution.

On the macroeconomic side, yesterday was the return (finally!) of important statistics to the agenda, with in particular the Philadelphia Fed’s manufacturing index (“Philly Fed” index), which fell significantly to 17.6 this month, missing expectations. “Companies continued to indicate overall increases in hiring and widespread price increases. Indicators of future general activity and new orders fell significantly, but respondents continue to expect overall growth over the for the next six months”, can we read in the commentary accompanying the publication. In addition, weekly jobless claims for week 15 came out at 184,000 new units, with little difference from week 14 (186,000), according to the latest figures from the US Department of Labor.

This morning, the publication of activity indicators in the Euro Zone beyond expectations are not enough to stem the decline of the Euro against the Dollar. In very early estimates for the current month, the services PMI came out at 57.7 and its industrial equivalent at 55.3. Commenting on this data flash PMI, 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 consumption hit by war-induced risk aversion. However, April also saw industrialists suffer as demand shifted from goods to services amid looser pandemic restrictions, including a record spike in spending on leisure activities, such as travel.”

At midday on the foreign exchange market, the Euro was trading against $1.0800 approximately.

KEY GRAPHIC ELEMENTS

Since its sharp exit from a broad consolidation wedge on April 4, the selling side has been confident, with 14 red bodies over the last 17 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. Negative review offered.

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 1.0803 USD. The price target of our bearish scenario is at 1.0455 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0905 USD.

The expected return of this Forex strategy is 348 pips and the risk of loss is 102 pips.

CHART IN DAILY DATA

©2022 News Bulletin 247

You May Also Like

Recommended for you

Immediate Peak