EUR / USD: Towards a frankly more hawkish attitude from the Fed?

(News Bulletin 247) – The heart of the week, with the outcome of the Fed’s FOMC on Wednesday and the outcome of the ECB Governing Council tomorrow will be essential for the confirmation or not, of the underlying bearish bias on the pair of Euro / Dollar currencies. In other words, the stake this week will be to refine the monetary tightening calendar of the two large institutions on either side of the Atlantic, to deduce as finely as possible the relative trajectory of the “remuneration” of the two. flagship currencies.

So what should we expect from the Fed meeting? Two 25 basis point hikes in federal rates in 2020 is the assumption that seems to be holding the line for the time being. In any case, Alexandre Neuvy, Managing Partner of Amplegest is clear: “Finished the speech of unconditional support and flexibility if necessary, lately the FED has shown its desire to accelerate the end of aid and to initiate a rate hike, and the whole question is going to be timing and scale. “

For Indosuez Wealth Management, the powerful institution headed by J. Powell “should take a more hawkish than at previous meetings. The recent price hike has indeed made some members of the Fed more talkative on the subject and the new points of the Fed should reflect this more tone. hawkish : The FOMC projections on interest rates could indeed include an increase of 50 basis points for 2022 and 1.75 for 2023 and 2.5 for 2024, which would make the rate outlook for 2024 closer to the long-term forecast of 2.5%. ”

On the other side of the Atlantic, “the situation is very different with a Euro Zone which experiences less inflation and a less tense job market than on the other side of the Atlantic”, notes the Capital Markets Strategies team at Tikehau Capital. “The ECB is eagerly awaiting the continuation of the PEPP (Pandemic Emergency Purchase Program) which is due to expire in March 2022. To avoid a too pronounced march with the APP program (Asset Purchase Program or asset purchase program) with less criteria flexible and not allowing the purchase of Greek government securities, a new sequence will be announced. It will have to convince that it addresses the fears of stakeholders on a possible financial fragmentation between the so-called “core” countries and the peripheral zone. “

“In the euro zone, the Omicron variant may prove to be a good reason to remain accommodating despite inflation above the ECB’s objectives” read this morning in a macroeconomic research note from Indosuez Wealth Management.

The scenario of a significant inflation differential on both sides of the Atlantic was reinforced at the end of last week. As a reminder, published on Friday, in the broadest product base, prices increased more than expected in November (+ 0.8% monthly), against + 0.9% in September. In data corrected for volatile elements (food and energy), prices rose 0.5%, in line with expectations, according to the latest data from the US Bureau of Labor Statistics. And a new inflationary marker was released on Monday with the producer price index in the United States, up 0.8% monthly for the largest basket, showing a warming greater than that predicted by the target ( market consensus).

In the statistical chapter yesterday, the monthly dynamic of industrial production in the Euro Zone hardly deviated from the consensus, progressing in October by 1.2% on a monthly basis.

At midday on the forex market, the Euro was trading against 1,1270$ about.

To note on the diaries: monetary verdict of the Fed at 8:00 p.m. and press conference at 8:30 p.m. (Paris time).

KEY GRAPHIC ELEMENTS

The short current was strongly reinforced by the break of a technical zone at 1.1530, on marubozu on November 10th. This is a major fact, which resulted in a massive release of selling energy. The short term is aligned with the medium term, bearish, on the Euro / Dollar currency pair, but the entry point is no longer optimal, as the probabilities of the formation of a protest rebound increase at this stage. Forex traders will temporarily prefer to stay out of the spot while waiting for a suitable entry point. A break from the low points of November would give a signal.

A break which would mark the end of a straitjacket lateralization, and which can be triggered by monetary announcements this week, or at least by inflections in the elements of language used by the big cashiers. First elements of response this evening.

MEDIUM-TERM FORECAST

In view of the key graphical factors that we have mentioned, our opinion is neutral in the medium term on the pair Euro Dollar (EURUSD).

We will keep this neutral opinion as long as the price of the pair Euro Dollar (EURUSD) is positioned between the support at 1.1150 USD and the resistance at 1.1360 USD.

DAILY DATA CHART

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