EUR/USD: Lagarde seems to be maintaining her agenda

While the European Central Bank warns of further rate hikes to come, the Euro regained a few pips against the Dollar. However, the bias remained bearish, the single currency having trouble seducing in a climate that is not conducive to risk taking, in particular since the publication at the end of last week of a battery of catastrophic activity indicators. The PMIs, in very first estimates for the month of June, all missed expectations, especially for the very sensitive German industrial component.

Today, the President of the ECB, Christine Lagarde, confirms that her institution still had rate hikes in sight. “It is unlikely that in the near future the central bank will be able to say with confidence that the peak in rates has been reached,” she said at the ECB's annual forum in Sintra (Portugal).

Yesterday the markets will have had little taste of the fall, even stronger than expected, of the IFO index of the business climate in Germany, to 88.4. “The collapse of the German IFO, as well as the drop in the PMI indices, published on Friday, suggest that German GDP probably contracted for the third consecutive quarter during the second quarter”, underlines Capital Economics.

The geopolitical situation on the front of the Russian military aggression in Ukraine also weighs, by its disconcerting developments, on the appetite for risk. "Last weekend's unrest in Russia, where a mutiny led by Yevgeny Prigozhin quickly gave way to an agreement with Moscow to end the insurgency, shows that the situation is unstable and that it is almost impossible to anticipate such events and their outcome", says César Perez Ruiz, Head of Investments and CIO at Pictet Wealth Management

On the agenda today: New Home Sales and the Richmond Fed Manufacturing Index as of 16:00 (European time)

Right now, the EUR/USD is trading at $1.0965.

KEY GRAPHIC ELEMENTS
The 20-day moving average (in dark blue) has just cut downwards the trajectory of its 50-day counterpart (in orange): the bearish message emerges strengthened. Note the importance of the crossing angle of these trend curves. Next intermediate threshold identified: $1.0550, a breach of which would have consequences in terms of occasional downward acceleration.

The short position will be held with discipline as long as the 20-day moving average gravitates below its 50-day counterpart (in orange).

Immediately a bevel (wedge) concentrates the energy of the spot. It just made a foray above, with no formal sign of a bullish reversal. On the contrary, the spot retraced this incursion in a handful of hours. Hence a very unattractive weekly candle (S25).

MEDIUM TERM FORECAST
In view of the key graphic factors that we have mentioned, our opinion is negative in the medium term on the EUR/USD parity.

Our entry point is at $1.0954. The price target of our bearish scenario is at $1.0693. To preserve the invested capital, we advise you to position a protective stop at $1.1013.

The expected return of this strategy is 261 pips and the risk of loss is 59 pips.