EUR/USD: Forex traders no longer want to hear about inflation

(News Bulletin 247) – This article, with open access, is produced by the stock market analysis and strategy research team at News Bulletin 247. To ensure you don’t miss any opportunities, consult all the analyzes and discover our portfolios by accessing our Privileges area.

The Euro/Dollar currency pair is now discovering a new framework of oscillations, not without volatility, while currency traders digest the last monetary policy meetings of 2023, meetings which will have reserved their share of surprises. “The Fed made a significant change in communication by indicating that the possibility of rate cuts had been discussed. This appears premature given the resilience of growth, a robust job market and the inflation still high”, judge the OSTRUM AM strategists.

“The ECB, for its part, remained cautious due to the strong increase in unit labor costs. It is awaiting data from the first half of 2024 to judge the evolution of salaries,” they continue before concluding that “a divergence major change has thus taken place between the Fed and the ECB. Despite the ECB’s efforts to contain market expectations, the latter have retained the significant change in communication from the Fed and anticipate rate cuts that are still too aggressive.”

It is this scale of difference between hopes, anticipations, intentions of the major central banks and reality when the time comes, which will give direction to the currency pair in the coming months.

“Analysts are ignoring persistent inflationary pressures,” warns Christopher Dembik, investment strategy advisor at Pictet AM. “The doubling of super-core inflation (excluding food, energy and housing) in the United States in November reminds us that we will still have to reckon with inflation next year. The disinflation process will take time and will certainly limit the room for maneuver of central banks to begin an aggressive cycle of rate cuts.”

Yesterday in the statistical chapter on Monday, the IFO of the business climate in Germany came out lower, below expectations, at 86.4. The cursor remains stuck in the heart of the “crisis” box in the “economic cycle clock” tool provided by the institute. Immediately, prices in the Euro Zone in November have just been confirmed in final data by EuroStat. Excluding food, energy, alcohol and tobacco, prices increased by 3.6% at an annualized rate.

To follow the housing starts and building permits across the Atlantic at 2:30 p.m. For the rest of the week, operators will be particularly attentive to the release of the PCE index, the preferred gauge of the American Federal Reserve (Fed), which will be published Friday afternoon. Without forgetting the consumer confidence index (Conference Board) tomorrow.

At midday on the foreign exchange market, the Euro was trading against $1.0940 approximately.

KEY GRAPHIC ELEMENTS

The complete retracement carried out over the whole week gives even more substance to the evolving scenario in tidy wide, between $1.0693 and $1.1012. The latter was validated by the clarity of the inflection made on Friday 15/12. This resistance level ($1.1012) is significantly reinforced.

MEDIUM TERM FORECAST

Considering the key graphical factors that we have mentioned, our opinion is negative in the medium term on the Euro Dollar (EURUSD).

Our entry point is at 1.0934 USD. The price target for our bearish scenario is at 1.0694 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1013 USD.

The expected profitability of this Forex strategy is 240 pips and the risk of loss is 79 pips.

DAILY DATA CHART