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EUR/USD: the verdict on US consumer prices is today
The momentum remains bearish on the Euro/Dollar currency pair, the day after the publication of the Fed Minutes, and in the run-up to the publication of consumer prices.
The Minutes are a valuable document for traders, especially now, as the Fed negotiates a delicate monetary turn, against a backdrop of fears of a "no landing" for the American economy. The Minutes are in fact a chronological report, hence their name, of the last meeting of the Federal Reserve's Monetary Policy Committee.
This document "showed that all participants agreed to reduce September and that a large majority of them supported the 50 basis point (0.5 percentage point) cut", comments Barclays. The bank anticipates two more rate cuts of 25 basis points this year from the American central bank.
As for the next meeting, in less than thirty days, and according to data from the CME Group's FedWatch tool, the probability of a 25 basis point cut in the Fed Funds is 86.8%.
As a reminder, the unemployment rate was first published, expected to be stable at 4.1% of the working population, but it came out lower at 4%. Job creations in the private sector (excluding agriculture) exploded to 253,000, against a consensus of 148,000 (!). Finally, average hourly wages increased by 0.3%, extending the August trend (+0.6%). Figures that show a very high resilience of private employment, and that could theoretically push back expectations of a rate cut. The market preferred to see the glass as half full, reassuring itself about the ability of the American economy to land gently, or even... not land at all (no landing). A scenario that is starting to worry the Stock Exchange.
In terms of geopolitics, "the spiral in the Middle East is accelerating", notes Geoffroy Landoeuer, Director of Financial Management at Turgot AM. "In Lebanon, Israel managed to injure thousands of Hezbollah soldiers and decapitate its general staff in just a few days. While the Iranian response was feared - it finally materialized on 1 October - oil prices, which fell sharply over the period (-7%) due to the deteriorating international economic situation, will have to be watched..." Enough to weigh on the barometer of risk appetite that the single currency constitutes.
On inflation, in the broadest price basket, retail prices are expected to rise by 2.4%, compared to 2.6% the previous month. Any higher result would cause tension in the trading rooms. See you at 14:30 (EU time) for the verdict on these consumer prices across the Atlantic.
"Inflation in services could still be a risk for monetary easing, as well as the upcoming presidential elections," warns Benedicte Kukla, Senior Investment Officer at Indosuez Wealth Management. "Indeed, the two main candidates are considered unfavorable to fiscal sustainability, but a revival of Donald Trump's campaign would increase economic and social uncertainty, while his foreign policy based on an increase in customs duties would revive inflationary concerns."
Right now, the EUR/USD is trading at $1.0941.
KEY GRAPHIC ELEMENTS
The oblique support line (drawn in black) gave way in a significant and increasing level of volatility. The 50-day moving average (in orange) also gave way quickly, the bearish message is reinforced. The next graphical event to watch is the imminent crossing of two remarkable moving averages, at 20 and 50 days.
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.
Our entry point is at $1.0931. The price target of our bearish scenario is at $1.0665. To preserve the capital invested, we advise you to position a protective stop at $1.1031.
The expected profitability of this strategy is 266 pips and the risk of loss is 100 pips.
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