EUR/USD: A drop in Fed Funds from March?

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An appetite for risk which dominates, investors increasingly convinced that the Fed will begin to lower its key rates from March… The Euro therefore continued to evolve at levels of firmness which had no longer been relevant since August 10. Two statistics, in particular, last week supported the possibility of a short-term pivot on the part of the Fed. These are GDP and PCE prices.

The PCE price index, the most followed by the American Federal Reserve (Fed), fell against all expectations by 0.1% in November. On an annual basis, the increase is limited to 2.6% year-on-year in November, compared to 2.9% the previous month. Excluding volatile elements such as energy and food, the basic “core PCE” inflation index stands at 3.2%, against a consensus of 3.3% and after 3.4% in October.

The day before, growth was revised significantly downward to 4.9% at an annualized rate, compared to 5.2% for previous estimates. Enough to fuel the scenario of a more lenient Fed, consistent with the tone adopted by J Powell at the end of the last FOMC of the year.

Currency traders see in these two figures proof that the Fed is on the verge of succeeding in its bet. The CME’s FedWatch tool puts the probability of seeing the American monetary institution lowering key rates at 84.6%.

Swiss Life AM strategists continue to “count on a deceleration of the American economy in the first half of the year, even if its magnitude should be less significant than expected after the Fed’s change of tone in December.” A tone which was then surprising by its accommodating tone. At the end of the last FOMC, Powell adopted a tone interpreted as rather flexible (dovish), suggesting the idea of ​​a short-term pivot, rather than maintaining the Fed Funds on a plateau.

To be followed at 4:00 p.m. the Richmond Fed manufacturing index.

At midday on the foreign exchange market, the Euro was trading against $1.1050 approximately.

KEY GRAPHIC ELEMENTS

The currency pair is in the process of breaking through a chart resistance level at $1.1012. This level would be definitively wiped out in the event of an increase in volatility.

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 1.1250 USD.

DAILY DATA CHART