EUR/USD: The Fed faces a complex equation

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(News Bulletin 247) – The Euro was balancing around $1.05, with currency traders showing their extreme caution as the outcome of a new Fed monetary policy meeting approached on Wednesday. Key meeting in the sense that investors want to know to what extent the Federal Reserve is ready to “mark the occasion”, after the particularly disappointing growth figures in the first quarter.

The question that remains, and which will focus the attention of investors at a press conference, is that of a possible “easing”, with the necessary quotation marks, of the forecast trajectory of rate hikes, following the publication of the first, unappealing estimates of US growth for the first three months of the year…

“The chairman of the Federal Reserve could on the other hand soften the tone regarding the next rate hikes, although new ones are expected in the coming months”, for Vincent Boy (IG France), who relies on the disappointment aroused by US Q1 GDP figures. It’s all about appreciation.

Especially since, as Emmanuel Auboyneau (Amplegest) recognizes, “the two uncertainties linked to the duration of the war in Ukraine and the importance of the wave of Covid in China make the analysis uncertain in the short term.”

“In both cases, a rapid improvement would have immediate disinflationary effects (via raw materials for Ukraine and the restoration of the supply chain for China). A prolongation of these two hazards would only anchor the inflation at high levels. analyzes the manager.

And on the single question of the American GDP in the first quarter, “if the publication, prima facieat -0.4% in quarterly variation of the American growth (-1.4% in annualized against +1% expected) marks a clear slowdown compared to the last quarter (+6.9% in annualized), the reading in more detail of the components shows a more resilient image of the American economy”, nevertheless qualifies Thomas GIUDICI, Co-head of bond management at AURIS Gestion.

“Indeed, GDP was mainly impacted by a booming trade deficit (-3.2 pts), aimed at rebuilding inventories of consumer goods, as well as lower government spending. At the same time, consumption continues to hold up well, with, for example, a further increase in consumer spending in April (+1.1% against +0.6% expected and +0.6% the previous month), despite high inflation in almost all goods.”

To follow the results of the survey of the private firm in human resources ADP at 2:15 p.m., which will constitute a foretaste of the NFP report (No Farm Payroll), federal report on employment in April, for publication Friday, 2:30 p.m. (Paris time).

At midday on the foreign exchange market, the Euro was trading against $1.0520 approximately

KEY GRAPHIC ELEMENTS

Since its clear exit from a wide consolidation wedge on April 4, the selling side has been confident, with 19 red bodies over the last 23 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, towards $1.0250. It will then be time to anticipate in a contrarian way a powerful rebound of contestation. We begin to place our trail stops deliberately close now as the probabilities of this rebound increase.

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 1.0528 USD. The price target of our bearish scenario is at 1.0251 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0605 USD.

The expected return of this Forex strategy is 277 pips and the risk of loss is 77 pips.

CHART IN DAILY DATA

©2022 News Bulletin 247

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