EUR/USD: The big central bankers are melting knots in the brain

(News Bulletin 247) – This article, in free access, is produced by the stock market analysis and strategy research team of News Bulletin 247. To not miss any opportunity, consult all the analyzes and discover our portfolios by accessing our Privileges area.

The Euro completed a pullback on the lower limit of an ascending channel on Thursday, as the outcome of a new Fed Board of Governors approaches, and the day after a Fed FOMC which leaves traders interrogative.

“The European Central Bank finds itself faced with a complicated situation”, for Emmanuel Auboyneau, Managing Partner of Amplegest. “Inflation, which is still too high, is falling only too slowly and would require a continuation of a restrictive monetary policy. But on the other hand, the European economy is showing signs of a slowdown which must be watched. strong could weaken banks (as in the United States) and further increase the cost of debt. We believe that the ECB should raise rates another one or two times maximum before a period of stabilization.

The latest inflation figures indeed raise questions about the trend towards a soft landing in prices, or a plateau. As a reminder on Tuesday, inflation in the Euro Zone was confirmed at 5.6% on an annual basis, excluding food, energy, alcohol and tobacco. Furthermore, the manufacturing PMI, in final data for April, came out close to the initial estimates, at 45.8 in the Euro Zone, and 44.5 for the German component alone.

Maxime Mura, IG Rates & Credit Manager at Swiss Life Asset Managers France thinks “that the maximum deposit rate should stabilize at 3.5% and that once this “plateau” is reached, rates should stabilize for a relatively long at this level.”

The manager believes that “inflation should, indeed, remain at high levels due to the second-round effects linked to the rise in wages. In addition, the expected slowdown should not be, in [son] central scenario, of sufficient magnitude to justify too precipitous a rate cut.”

The Fed, which yesterday completed a new Monetary Policy Committee (FOMC), as expected tightened its screws by 25 basis points on its Fed Funds, without providing clear clarifications on the agenda for the next decision. Is the pivot imminent? Are the terminal rates reached? Is a long break on set planned?

“While the consensus was expecting a break after last night’s rate hike and a drop before the end of the year, it will have to change its mind,” notes however John Plassard of Mirabaud. “If Jerome Powell [le président de la Fed, NDLR] announced (more or less officially) a pause in the monetary institution’s rate hike, it is (for now) unlikely that the pivot (the rate cut) will be near,” he adds.

In terms of statistics yesterday, the unemployment rate in the Euro Zone contracted to 6.5% of the active population. In addition, the survey by the private human resources firm ADP has revived concerns about inflation, highlighting figures illustrating recurring tensions on the employment front, with job creations in the sector in particular. private exploding expectations, flirting with 300,000. Verdict Friday with the federal report NFP (Non Farm Payrolls). The ISM Services indicator in final data for April came out on target, at a level close to 52 points. As a reminder, a score above 50 reflects an expansion dynamic in the sector under consideration.

To follow the weekly registrations for unemployment benefits in the United States at 2:30 p.m., before the NFP report on employment tomorrow. The opportunity to measure even more precisely the persistent degrees of tension on the American labor market, tensions themselves generating inflation. The main meeting of the day is the outcome of the Board of Governors of the European Central Bank. The press conference is scheduled for 2:45 p.m.

At midday on the foreign exchange market, the Euro was trading against $1,1070 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