EUR/USD: False start for Thursday spot, after CPIs

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Like the US equity markets, the Dollar Euro / Dollar pair made a “false start” yesterday, quickly changing its mind after a short moment of euphoria. Statistical high point on Thursday, consumer prices nibbling 0.2% in July, in line with expectations, whether for the widest product base or the data corrected for volatile elements. Over one year, prices increased by 3.2%. Not enough to further feed the mill of the most hawkish members of the Fed.

For San Francisco Federal Reserve (Fed) Chair Mary Daly, it is still premature to declare the “victory” of the US Federal Reserve over inflation. “There’s still work to be done. And the Fed is fully committed to resolutely bringing inflation back to its 2% target,” she told Yahoo! Finance.

The CME tool FedWatch now assigns almost 90% probability to the scenario of a pause at the end of the FOMC in September.

“The dynamics of disinflation are changing in nature: it is mainly energy that brought down inflation in the first half of the year, but it is underlying inflation (housing and to a lesser extent transport ) which will fall in the second half of the year. Headline inflation could experience a period of relative stability around current levels, with the decline in underlying inflation counteracting clearly favorable ‘price at the pump’ base effects”, suggests Bastien Drut, Head of Studies and Strategy at CPR AM.

On this side of the Atlantic, eyes remain nervously riveted on Germany, which is beginning to concentrate a certain number of concerns. The leading economy in the Euro Zone, although of course still very powerful, shows tangible signs of greater fragility than for France.

As a reminder at the start of the week, the Sentix index of investor confidence in the Euro Zone certainly rebounded significantly, to -18.9. However, “Germany is adding fuel to the fire: the first economy in the euro zone becomes the weakest link in the euro zone, weighs heavily on the monetary union as a whole. The component of the index for for Germany falls for the fourth consecutive time to -30.7 points,” reads a commentary note accompanying the Sentix survey. The disappointment was also severe on German industrial production figures in June (-1.5% in volume compared to May).

The economic colossus of the Euro Zone, which entered recession, weakened by the fall in domestic consumption, is therefore weakened. We will carefully follow the next statistical publications on our powerful neighbor: ZEW, inflation, CPI, growth data, industrial reports, will be scrutinized.

On the agenda this Friday, to follow as a priority across the Atlantic, producer prices at 2:30 p.m. and preliminary data from the consumer confidence index (U-Mich) at 4:00 p.m.

At midday on the foreign exchange market, the Euro was trading against $1,1000 approximately.

KEY GRAPHIC ELEMENTS

The near total retracement of July’s gains does not militate at this stage for a continuation of the advance of the currency pair, without formally ruling it out. This retracement, by its magnitude, weakens the bullish message then delivered over a good part of July. The outcome of the ongoing test of the 50-day moving average (in orange) will be decisive. Immediate neutral opinion. Forex traders will therefore avoid taking a position in the next few hours on the currency pair, waiting for a directional entry.

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 1.0854 USD and the resistance at 1.1100 USD.

CHART IN DAILY DATA