EUR/USD: Second-round inflation, more difficult to curb?

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The Euro/Dollar, one of the most reliable barometers of risk appetite in the financial markets, was treading water the day after an ECB Governing Council suggesting that the fight against inflation in Euro zone will be long.

The powerful Central Bank headed by Christine Lagarde unsurprisingly raised its key rates by 25 bps, while leaving the field open to other rate hikes. It should be noted at this stage that the Fed and the ECB are not synchronous in their respective cycles.

“While the ECB has confirmed its meeting-by-meeting approach, based on the statistics, it also expects that there is still some way to go before key rates reach sufficiently restrictive levels”, commented Konstantin VEIT, manager portfolio at PIMCO. “The ECB is not taking a break and will continue to raise interest rates as underlying price pressures remain too strong.” At this stage, inflation in the monetary union has reached 5.6% at an annualized rate, in data corrected for volatile elements (food, energy, alcohol and tobacco).

Emmanuel Auboyneau, Managing Partner of AMPLEGEST, warns against “a second-round inflation, with a wage price loop, [qui] threatens to establish itself. She would be much harder to contain.”

“This more structural inflation is partly due to the opportunity effect of many companies, in the United States and in Europe, which did not hesitate to increase their prices sharply to restore and then increase their margins. are engulfed in a window of opportunity that allowed them to correct lean years. This is particularly true in the food sector where we have seen agreements between producers and distributors on the back of the consumer.”

This specter of the price/wage loop, avoided for the time being, explains the attention paid to employment figures, especially on the other side of the Atlantic where tensions in certain sectors are high. Precisely, American employment is in the spotlight on this second part of the week. Before the highly anticipated publication of the NFP (Non Farm Payrolls) report today, forex traders had a foretaste on Wednesday with the publication, followed because it was reliable, of the traditional survey by the firm ADP (Automatic Data Processing), which highlighted evidence of job creations in the private sector exploding expectations, flirting with 300,000. On Thursday, new weekly claims for unemployment benefits were published, at 242,000, a level relatively close to the target.

At midday on the foreign exchange market, the Euro was trading against $1.1025 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