EUR/USD: The rate equation becomes more complex

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Currency traders came to their senses after a week that was marked by the very early extinction of a fire on the banking front and by confirmation of a slowdown in inflation on both sides of the Atlantic. .

Apart from Atlantic Canada, PCE prices (personal consumption expenditures), excluding food and energy, increased “only” by 0.3% in February, against a month of January at +0.6%. The consensus certainly foreshadowed a slowdown in the rise in prices, but less significant (+0.4%). Enough to ease the pressure on the Fed when it had a lot to do in its last weeks to put out the beginning of a fire caused by the bankruptcy of the Silicon Valley Bank. The justification for a slowdown in its own pace of rate hikes is mechanically gaining credence, although this trend towards price deceleration must naturally be sustained over time. In any case, this PCE figure is all the more “impactful” as it is the measure favored by the Fed in its assessment of inflation.

Earlier in the day on Friday, operators took note of the slowdown in the rise in consumer prices across the euro zone following the announcement of a similar trend in Germany and Spain. The annual inflation rate in the euro zone fell in March for the fifth consecutive month, thanks to the lull in energy prices. It stands at 6.9% over one year, after 8.5% in February, according to Eurostat. Note, however, a rise in core inflation (which excludes food and energy prices) to 5.7%, which could lead the ECB to raise its rates further.

“The good news is that inflation in the euro zone is down. The bad news is that the base rate continues to climb”, nuance Ulrike Kastens, Economist Europe at DWS, who expects “that the rates Inflation rates will decline further over the next few months. However, this does not apply to the base rate, which we believe has not yet peaked. Added to this are higher wage settlements and a increasingly tight labor market. The European Central Bank should react to this situation by proceeding with further interest rate hikes.”

To follow at 4:00 p.m. this Monday the ISM manufacturing index.

At midday on the foreign exchange market, the Euro was trading against $1.0850 approximately.

KEY GRAPHIC ELEMENTS

Around a 50-day moving average (in orange), whose orientation becomes horizontal, the technical messages delivered are progressively dual, without one camp or the other uniting. Opinion is therefore neutral on the flagship currency pair pending a concordant array of clear graphical and technical clues.

MEDIUM TERM FORECAST

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

We will keep this neutral opinion as long as the Euro Dollar (EURUSD) parity prices are positioned between the support at 1.0710 USD and the resistance at 1.0875 USD.

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