EUR/USD: Likely entry into consolidation pennant

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Very powerful release of buying energy to be reported yesterday on the Euro/Dollar currency pair, following the publication of a stronger than expected slowdown in American inflation. The slightest tension on the American 10-year bond was compounded by the “risky asset” effect of the single currency. In the end, a sudden exit from consolidation, on a long white candle.

The monthly consumer price indices (CPI), regardless of the product base chosen, all came out below expectations. Compared to October 2022 in particular, all products combined, inflation now stands at +3.2% compared to +3.7% the previous month, below the target at +3.3%, according to the latest data published by the Department of Labor.

Better yet, so-called “core” inflation, that is to say excluding the price of food and energy, stood at 4.0% over one year, the lowest for more than two years. years. Today’s statistic further distances the prospect of a rate hike from the American Federal Reserve. Moreover, the markets estimate the probability of a rate increase of 0.25 percentage points next month at 5.2%, compared to another 14.5% the day before, according to the CME FedWatch tool.

Lindsay Rosner, Head of Multi-Sector Investing for Fixed Income at Goldman Sachs Asset Management, dissected the most significant components, particularly on rent. Remember that, across the Atlantic, the CPI includes a rent component.

“Core CPI data released today is lower than expected. The market was expecting the number to be higher in part due to ‘residual seasonality’ and new source data that has been incorporated in the calculation of health insurance. However, the important indicator in terms of inflation is the equivalent of rent for owners. There was a sharp reversal of the upward trend on housing last month which resulted in a significant deceleration in the sector. This should consolidate the Fed’s status quo in December.”

On the agenda this Wednesday, to follow as a priority, at 2:30 p.m., a group shot of major statistics across the Atlantic: producer price indices, retail sales and retail sales. A busy program therefore, which should once again be monitored like milk on fire by the Fed.

At midday on the foreign exchange market, the Euro was trading against $1.0860 approximately.

KEY GRAPHIC ELEMENTS

The structure of the consolidation after the white marubozu candle mentioned above will be instructive. The absence of bullish extension this morning suggests the formation of a consolidation on the upper part of the elongated body. A flag (pennant or flag) is the preferred option. A bullish entry point would then emerge.

MEDIUM TERM FORECAST

Considering the key graphical 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 Euro Dollar (EURUSD) prices are positioned between support at 1.0792 USD and resistance at 1.0929 USD.

DAILY DATA CHART