EUR/USD: increased pressure on the euro with the end of rate hikes

The euro melted against the dollar yesterday, dissociating itself for once, from the DAX and the CAC, in the wake of the ECB Governing Council. If the powerful Frankfurt Monetary Institution increased the rent of the Euro by a quarter of a basis point, it suggested that this turn of the screw would probably be the last, before entering a plateau phase. A source of relief in the trading rooms, which can be based on the idea of finally reaching a terminal rate, in the absence of a pivot scenario.

For Guillaume Sereaud, President and Partner of Aliquis Conseil: "This increase could be the last, but this does not mean the end of the ECB's fight against inflation. The ECB expects to maintain these high rates until inflation falls significantly. In addition, it could decide to reduce its balance sheet more quickly, putting an end to reinvestments from the “emergency pandemic” program (PEPP). A strategy likely to increase long-term rates, making the financing conditions even stricter."

The ECB, which has significantly lowered its growth forecasts and raised its inflation extrapolation curve, intends not to give up its efforts.

Sebastian Vismara, senior economist and strategist at BNY Mellon IM thinks "that the rate cut will only come from the second half of 2024, and later than the market expected, but we also think that once the cycle As easing begins, the rate cut will likely be faster and deeper than previously anticipated."

Yesterday in terms of stats, there was relief in the US economy with producer price and retail sales indices well above expectations. On the agenda today, to follow in priority the Empire State manufacturing index at 16:00 (european time) and the preliminary U-Mich data for consumer confidence and inflation forecasts.

Right now, the EUR/USD is trading at $1.0658.

KEY GRAPHIC ELEMENTS
The almost complete retracement of July's gains does not militate at this stage for a continuation of the advance of the currency pair, without formally excluding it. This retracement, by its magnitude, weakens the bullish message then delivered over a good part of the month of July. The outcome of the ongoing test of the 50-day moving average (in orange) will be decisive. The bearish message takes shape with the break - now validated - of the 50-day moving average by its 20-day counterpart (in dark blue), at an important angle. The short position will be retained as long as the latter gravitates below the first. The advantage of this investment plan is the discipline that it inherently induces.

MEDIUM TERM FORECAST
Considering the key graphical factors that we have mentioned, our opinion is negative in the medium term on the EUR/USD.

Our entry point is at $1.0663. The price target for our bearish scenario is at $1.0436. To preserve the invested capital, we advise you to position a protective stop at $1.0735.

The expected profitability of this strategy is 227 pips and the risk of loss is 72 pips.