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EUR/USD: downward harami pattern ahead of 2 major monetary meetings
The EUR/USD, after a breathing phase, was already suffering in contact with the upper limit of the Bollinger bands (20;2.5), validating a combination of harami candles, on the eve of important monetary meetings, on both sides of the Atlantic.
The Fed will be the first to complete, tomorrow 29/01, its Monetary Policy Committee (FOMC). "The Fed will remain on hold at the FOMC meeting in January, although recent data could suggest a slightly less restrictive stance than in December. The latest inflation statistics keep open the possibility of further rate cuts, even if they would be limited, and the labor market - despite strong hiring dynamics - is not currently a source of inflationary pressure. However, uncertainty around economic policies remains present", anticipates Christian Scherrmann, chief economist for the United States at DWS.
Emmanuel Auboyneau, Managing Partner at Amplegest, agrees: "Donald Trump's first post-election meeting will set the tone for monetary policy in the coming quarters. Beyond the expected status quo on rates, it is the message delivered by Jerome Powell that will be scrutinized. It is likely that he will take a wait-and-see approach by emphasising the inflationary risk that has not disappeared. He should give a very cautious speech, not ruling anything out at this stage, which seems normal given the uncertainties about the reality of the new president's first measures on future customs duties."
The European Central Bank (ECB) will follow suit the next day with the end of its Governing Council, the European equivalent of the FOMC. The powerful central bank in Frankfurt is clearly not facing the same challenges.
"Unlike the United States, Europe does not face an imminent risk of economic overheating, with growth forecasts remaining significantly below potential growth" euphemises Alexander Bell, CFA Fixed Income Portfolio Manager at Indosuez Wealth Management, who believes that "the European Central Bank (ECB) should cut rates by 25 basis points on Thursday, January 30, as well as during the two following meetings." . "Although the January figures in Europe may show some volatility due to annual adjustments and fiscal changes, we anticipate a slowdown in inflation during the first half of the year", he adds.
It is clearly a dichotomy, of strategy and objectives, which is in fact being established between the FOMC and the Board of Governors. "The possible divergence between monetary policies could translate into a rise in the dollar in the short term", anticipates Claudia Panseri, Chief Investment Officer at UBS WM France. "We expect the Fed to cut rates twice this year, totaling 50 basis points in total; these cuts are not expected to occur before the second and third quarters. The European Central Bank is expected to cut rates by 100 basis points in the first half of the year. Political divergences strongly influence currencies, which conditions foreign exchange markets and risks causing an excessive adjustment in exchange rates."
To follow this Tuesday, a dense and rich macroeconomic programme in the US, including durable goods orders, the S&P Case Schiller index of real estate prices in about twenty representative agglomerations of the market, the Richmond Fed manufacturing index and the sacrosanct consumer confidence index (Conference Board).
Right now, the EUR/USD is trading at $1.0437.
KEY CHART ELEMENTS
The 50-day moving average (in orange) continues to constitute a solid technical and graphic barrier. In the shorter term, its 20-day counterpart (in dark blue) is acting as dynamic resistance. And this without the RSI oscillator positioning itself in the oversold zone. In the immediate future, the currency pair is tracing a negative harami structure in the upper part of the Bollinger bands. Once the perfect parity is reached, namely $1 for ?1, an energetic buying reaction of contestation could take place.
MEDIUM-TERM FORECAST
In view of 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 $1.0432. The price target of our bearish scenario is set at $1.0001. To preserve the invested capital, we advise you to position a protective stop at $1.0609.
The expected profitability of this forex strategy is 431 pips and the risk of loss is 177 pips.
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