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#1 06-05-2024 17:23:19

johnedward
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From: Paris - France
Registered: 21-12-2009
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EUR/USD: Fed + ECB - towards a decorrelation of monetary policies

EUR/USD: Fed + ECB - towards a decorrelation of monetary policies


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The Euro remained in a delicate position against the dollar, while monetary policies on both sides of the Atlantic could experience a phenomenon of "decorrelation", according to the term used by Emmanuel Auboyneau (Associate Manager Amplegest). On the one hand, "internal growth [in the United States] is still vigorous, particularly in services, while consumption of goods has not contributed. The job market shows no sign of weakness at this stage."

On the other hand, "the European situation is not comparable with sluggish growth, even if it shows signs of trembling, and inflation quite close to the desired 2%. The European Central Bank therefore has more latitude to begin its cycle monetary easing."

That's the background. The latter requires nuance, as the latest figures on American employment have shown, which are a little less tense than expected. An essential working document for the Fed, the Non Farm Payrolls report for April, published Friday, allowed the American 10-year to begin a welcome decline.

First of all, the unemployment rate rose slightly to 3.9% of the active population (target at 3.9%). The average hourly wage, up 0.2%, did not rise to the consensus level (+0.3%). And finally, the number of job creations in the private sector (excluding agriculture) showed a very clear contraction compared to March, at 179,000.

Good news on the PMI Services activity barometer, in final data for the month of April, which stands at 53.4, above the first estimates for the entire Eurozone. Dr. Cyrus de la Rubia, Chief Economist at the Hamburg Commercial Bank, provided the following valuable insights:

"Productivity, however, represents a significant challenge for the services sector as well as for the ECB. Since the start of 2021, service providers in the euro area have continued to recruit, even during phases of economic slowdown observed in 2022 and 2023, a trend suggesting significant staff turnover forcing companies to hire several individuals for the same position in order to maintain the same level of activity, and therefore indicating a drop in productivity."

"At the same time, the PMI index of prices paid (which largely include wage costs) highlighted a strong increase in costs over the last twelve months, after a clear recovery already observed in 2022. These strong inflationary pressures should lead the European Central Bank to show restraint regarding the extent of a possible cut in interest rates expected in the coming months."

Currency traders have also just become aware of the Sentix investor confidence index in the Eurozone, up significantly to -3.7, above expectations.

No major American figures are on the agenda this Monday.

Right now, the EUR/USD is trading at $1.0772.

KEY CHART ELEMENTS
The very clear pullback on Thursday 18/04 on a resistance zone ($1.0693) will invite people to take short positions again on the EUR/USD, especially as the break of the 50-day moving average (in orange ) by its counterpart at 20 days (in dark blue) was done at a relatively large angle. The succession of high points (12/28, 03/08, 03/21, 04/09 and 04/26) is now clearly decreasing.

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 $1.0766. 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 $1.0886.

The expected profitability of this strategy is 330 pips and the risk of loss is 120 pips.

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