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#1 09-05-2024 10:33:53

johnedward
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From: Paris - France
Registered: 21-12-2009
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EUR/USD: traders have their eyes on the UK's central bank

EUR/USD: traders have their eyes on the UK's central bank


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The probable decoupling (or at least the probable decorrelation) between monetary policies on both sides of the Atlantic continues to favor the Dollar, the currency pair remaining under pressure under an oblique line (resistance level in black on the graph below). below).

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."

The scenario of a reduction in European rates before federal rates - which would constitute a historic first - should be seriously considered. Beyond that, it is the comparative trajectory of falling rates on both sides of the Atlantic which is being completely redefined.

This backdrop must be nuanced.

"If a first rate cut [by the ECB] in June therefore seems to be materializing, the continuation of the monetary easing schedule remains uncertain at this stage," says Romane Ballin (Auris Gestion). "The recent rebound in activity in Europe (GDP up 0.3% in Q1 in the euro zone) calls for a gradual and cautious approach. There are also numerous debates within the institution, some worrying about the consequences for the exchange rate in the event of a prolonged divergence between key rates on both sides of the Atlantic."

And above all, the scenario of two cuts in Fed Funds, once dismissed by the market, is gradually coming back into play. According to the CME Group's FedWatch tool, operators are counting more than 60% on two key rate reductions by the end of December from the American central bank.

"New York Fed President John Williams said there are signs that households are more cautious in their spending, and he expects rate cuts eventually, although the decision to lower them will depend on all the available data," report analysts from Natixis CIB Research, cited by Agence France Presse.

"Thus, the Fed could start lowering rates as soon as the summer break ends," they add.

On the agenda Wednesday, neither wholesaler stocks at 4:00 p.m. nor crude stocks across the Atlantic surprised operators. On Tuesday, retail sales in the Euro Zone, up monthly by 0.8% in March, exceeded the consensus by 0.2 basis points. This Thursday will be mainly marked for currency traders by the monetary policy decision, at 1:00 p.m., from the Bank of England. The latter could chart the course towards a probable rate cut in June, giving even more credence to the scenario of a rate cut by the ECB from June.

Right now, the EUR/USD is trading at $1.0728.

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, under an oblique line of resistance (black).

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 $1.0733. 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 $1.0831.

The expected profitability of this forex strategy is 297 pips and the risk of loss is 98 pips.

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