EUR/USD: Too early to discuss rate cut timetable?

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The Euro’s attempt at a reaction was quickly curbed, after the publication of consumer price indices in the United States yesterday.

For the month of November, annualized prices were up 3.1%. Excluding food and energy, they increased by 0.3% monthly, in line with expectations. On the broadest basket of products, the consumer price index increased by 0.1% over one month in November, where the consensus was banking on stability of this indicator compared to October.

In this final stretch of the year, currency traders have a meeting with the two main money makers on the planet, J Powell this Wednesday and C Lagarde tomorrow. The Fed and the ECB successively and respectively complete their monetary policy meeting (FOMC) and Council of Governors.

“The Federal Reserve will surely be keen to calm market expectations regarding the next rate cuts,” tempers Emmanuel Auboyneau, Managing Partner of Amplegest, on expectations of the FED meeting. The recent massive drop in long-term rates can be explained by encouraging inflationary figures and a slight decline in economic activity. The rise in short-term rates is most likely over but Jerome Powell will explain that vigilance must still be required. These will be elements of language whose purpose will be to alleviate the pressure from investors and to give themselves time.

A monetary status quo is widely anticipated for the ECB as well. But currency traders are eager for the slightest clue to refine the estimates of the date of a first reduction in key rates.

“No interest rate change is expected as part of the ECB meeting this week,” adds David Zahn, Head of European Fixed Income, at Franklin Templeton. “However, the focus will be on two points: the discussions around quantitative tightening (QT) and balance sheet reduction, but also on the question of knowing to what extent it is appropriate to postpone the rate cuts currently anticipated by the walk.”

Next meeting, complementary to the CPI: the PPI (producer price indices), at 2:30 p.m.

Yesterday, currency traders took note of the ZEW confidence index in the Euro Zone’s leading economy, at 12.8 points, beyond expectations. “Despite the current budget crisis, Germany’s assessment of the situation and economic expectations have improved slightly again. This is due to the fact that the share of respondents expecting a fall in interest rates share of the ECB in the medium term has doubled. This is good news for the German construction sector, for which we see significantly more optimistic expectations this month. Likewise, the share of respondents expecting a further decline in inflation rates is falling”, comments ZEW President Professor Achim Wambach on the survey results.

To follow this evening the outcome of the FOMC at 8:00 p.m. The press conference, which will be well attended, is scheduled for 8:30 p.m. (Paris time). The slightest inflection in the elements of language, and the tone (more or less flexible, more or less muscular or restrictive) will be dissected.

At midday on the foreign exchange market, the Euro was trading against $1.0775 approximately.

KEY GRAPHIC ELEMENTS

Since November 29, the Euro/Dollar has almost completely retraced the gains made from November 14 to 28, but with no indication of an imminent restart. The opinion will remain neutral above the low points of the candle in marubozu blank of November 14. A side band is emerging.

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 1.0693 USD and resistance at 1.1012 USD.

DAILY DATA CHART