EUR/USD: The Fed on the razor’s edge

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The Euro, against the Dollar, benefits from a “scissors” effect, with on the one hand the driving force of a return of appetite for risk in the short term, and on the other hand the prospect of a narrowing of the “remuneration” differential between the two spot currencies, in the wake of the publication yesterday of consumer price indices in the United States. Clues that will have generated a certain relief.

June US CPIs show, to traders’ relief, a moderate but noticeable cooling in price dynamics, which they can cross-reference with the findings of the latest jobs report, also showing a decline, albeit a slow one, of the temperature. In detail, prices, food and energy included, rose in June at an annualized rate of 3.0%, whereas the consensus, already optimistic, foreshadowed an increase of 3.1%. Excluding food and energy, elements considered volatile, the monthly rise in prices is 0.2%, also below the consensus.

This publication of these price data was expected like milk on the fire as the Fed will hold its monetary policy meeting in two weeks. The statistics of the day, however, give hope that the Fed eases its monetary tightening, even if its members have signaled for a long time that a new rate hike was to be expected and will be, unless surprised, recorded. The CME’s FedWatch tool suggests a 25 bp increase in Fed Funds remuneration, with a probability of more than 92%.

Currency traders can, however, appreciate the degree of cooling, however slow, of the US economic machine after months of restrictive monetary policy, by cross-referencing these price data with the latest federal monthly report on private employment. If these figures should not divert the Fed from its objective, they have the merit of giving “marbles” to the most dovish members of the Monetary Institution led by the inflexible J Powell…

“For now, the Fed is assessing the lagged effect of key rate hikes, while closely monitoring the data and the evolution of the banking turmoil,” three Jupiter AM managers agree in a market note. . “Because the path to an eventual rate cut is not necessarily linear. The “Goldilocks” scenario of slower growth containing inflation and in turn leading to rate cuts this year seems to have been pushed back much further than expected at the start of the year. Until inflation has fallen to acceptable levels, interest rates will remain high, which means positioning will remain on the edge.”

To follow the producer price index in the United States at 2:30 p.m.

Published at the end of the morning, industrial production in the Euro Zone for the month of May disappointed, progressing by 0.2%, under more greedy expectations.

At midday on the foreign exchange market, the Euro was trading against $1.1160 approximately.

KEY GRAPHIC ELEMENTS

Here are the technical elements that we proposed yesterday:

“The spot has just exceeded, without a break, a level at 1.1000, which until now was the upper limit of a sideways drift channel. The figures on US inflation (at 2:30 p.m.) will be essential to qualify support or resistance, if any, this chart level.”

This level ($1.10) is fully qualified as support, given the volatility when it is crossed. It shattered. We expect engagement in an episode of consolidation of this very recent advance.

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 1.1000 USD and the resistance at 1.1190 USD.

CHART IN DAILY DATA