EUR/USD: Monetary tightening, the beginning of the end?

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The dollar remained groggy, in the wake of the publication of very encouraging figures last week on US inflation (consumer prices, producer prices). Figures that very clearly militate for a (very) gradual softening of the Fed’s tone during its next monetary maturities. In any case, on the occasion of the next FOMC, at the end of the month, the option of a 25 basis point increase in the Fed Funds remains almost certain.

Thomas Giudici sees in it, with a phrase that makes sense, the “beginning of the end of monetary tightening”…

“The most important catalyst for the progression of equity indices, US inflation has once again come out below consensus expectations and confirms that the disinflation movement is well and truly underway”, summarizes the head of bond management at ‘Auris Management. “While these elements should not call into question the central scenario of a further Fed rate hike at the end of the month, there is a good chance that this will be the last of the monetary tightening cycle initiated in March 2022. Indeed, in addition to the disinflation movement at work, the impact of the rise in rates should start to weigh more on growth and on the job market as indicated by the Beige Book.

The scenario of a soft-landing of the US economy is corroborated on Tuesday by monthly retail sales well below expectations. We will also closely follow, at 3:15 p.m., the monthly federal report on industry (volume of production and rate of use of productive capacities).

The Euro, however, halted its strong advance on Monday, due to unappealing Chinese indicators, weighing on risk appetite. Retail sales, in particular, for the month of June missed expectations, as did growth in Q2, at +6.3% compared to Q2 last year, compared to consensus at +7, 1%. “Although this could lead to new support from the government, the evolution of the Yuan and the situation on the level of indebtedness could reduce the room for maneuver of the party”, comments Vincent Boy, market analyst IG France .

At midday on the foreign exchange market, the Euro was trading against $1.1250 approximately.

KEY GRAPHIC ELEMENTS

The level at $1.10, a key level, 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 1.1100 USD and the resistance at 1.1300 USD.

CHART IN DAILY DATA