EUR/USD: Last monetary tightening before a long break?

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While risk appetite is temporarily dried up on the financial markets, in search of certainty on the solidity of the American banking system, and with the approach of important monetary meetings, the Euro/Dollar currency pair confirmed its frank exit from the bottom of a bullish channel.

The Fed is completing a new Monetary Policy Committee (FOMC) meeting tomorrow, following which a further 25bp tightening is favored by a very large segment of investors. Any element, in a press conference, on the achievement or not of the so-called terminal rates will be decisive.

As for the European Central Bank (ECB), it completes a Board of Governors on Thursday. With “fundamental pressures on prices [qui] remain strong”, for Konstantin VEIT, portfolio manager at PIMCO, who sees a further rise of 25 basis points. “Still a long way to go”, summarizes the asset manager, who highlights the still high character of inflation.

While US inflation slowed to 4.2% year on year in March from 5.1% in February, the underlying component (excluding energy and food) has tensed investors. “Core” inflation increased over one month, by +0.3% and slowed less than expected over one year, to 4.6% against 4.7% in March and 4.5% expected by economists polled by the Wall Street Journal. On the Old Continent, inflation also remained high within the euro zone countries. In France, for example, it rebounded to 5.9% over one year in April, after having slowed to 5.7% in March, according to an initial estimate published by INSEE.

To be complete on the statistical front, the Chicago PMI index exceeded expectations, rising sharply to 48.6, while the consumer confidence index (U-Mich, revised data), which has been under close surveillance since the disappointment caused by the Conference Board index, came out close to expectations, at 63.5 points. So much for the statistics published at the end of last week. Yesterday, the US manufacturing ISM for the month of April came out close to target, at 47.1.

At midday on the foreign exchange market, the Euro was trading against $1.0965 approximately.

KEY GRAPHIC ELEMENTS

In accordance with the “discipline” that we have been promoting for several weeks, the exit from the bottom of the flagship currency pair of an ascending channel imposes to cut long positions, pending a suitable entry point.

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 maintain this neutral opinion as long as the Euro Dollar (EURUSD) parity prices are positioned between the support at 1.0860 USD and the resistance at 1.1190 USD.

CHART IN DAILY DATA