EUR/USD: The inflation horse is no longer galloping, but is not yet tamed

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The Euro Dollar “consolidated” near a bullish 20-day moving average, with the confirmation, last week, of a now marked decline in inflation, on both sides of the Atlantic. The slowdown in price dynamics was particularly surprising in the Euro Zone, to the point of putting pressure on the ECB regarding the timetable for starting the rate cut.

“Combined with certain comments from the Fed (Waller) and the ECB (Villeroy), this has increased pressure on global rate forecasts, with markets now assessing the chances of a relaxation of monetary policy at more than 50%. the ECB by March 2024″, state Nomura strategists in their weekly note on Europe. However, they believe “that the first drop will occur six months later, but [reconnaissent] that recent inflation results increase the risk of earlier moves.”

As a reminder, on Thursday, the dynamic of slowing inflation emerged even more significant than expected. Excluding food, energy, alcohol and tobacco (elements considered volatile), prices increased at an annualized rate of 3.6% in November, compared to a target of 3.9% and a month of October of 4.2%! A very significant slowdown which should bring a little flexibility to the ECB’s monetary policy. Across the Atlantic, the PCE (Personal Consumption Expenditures), the preferred gauge of the American Federal Reserve (Fed) for measuring inflation, increased by 3% over one year in November, compared to 3.4% last month. The “core” index, excluding energy and food prices, increased by 3.5%, a figure in line with the consensus of economists surveyed by the Wall Street Journal.

Friday, during a round table at Spelman College in Atlanta, J. Powell recalled that the road to achieving inflation targets is still long. “The response was clear, it was a “semi-hawk” Fed president who spoke, leaving no room for complacency. He recalled that inflation was moving in the right direction but that it was still well above the target and that “core” inflation (excluding food and energy) was still too high,” analyzes Alexandre Baradez for IG France.

“Like other members of the Fed, Jerome Powell clearly stated that “the Fed will raise rates further if necessary”, believing that it was “premature to say that monetary policy is sufficiently restrictive”. He said recalled that labor market conditions were “very strong” even if they had relaxed a little.”

We will also be following with the greatest attention the figures on American employment which will mark the statistical agenda of the week: the new JOLTS job offers, the weekly registrations for unemployment benefits, the ADP firm survey, and culminating in the monthly NFP report on Friday (Non Farm Payrolls).

In the immediate future, currency traders have just become aware of the Sentix investor confidence index in the Euro Zone, up less sharply than expected, at -16.8. To follow at 4:00 p.m. orders to American industry.

At midday on the foreign exchange market, the Euro was trading against $1.0875 approximately.

KEY GRAPHIC ELEMENTS

After a bullish runaway characterized by the candle in marubozu school on November 14, followed by a very short consolidation and an early bullish extension, a technical adjustment is underway, an adjustment catalyzed by the statistical publications of Thursday, November 30. The view is neutral in close proximity to the 20-day moving average (dark blue).

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 1.0822 USD and resistance at 1.1012 USD.

DAILY DATA CHART