EUR/USD: Very good end of the year for the single currency

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Bullish bias maintained on the Euro/Dollar, against a backdrop of chronic risk appetite, and with the support of a new European fiscal framework. “Such an agreement became urgent, the rules of the Stability Pact had in fact been suspended in the face of the economic crisis linked to Covid but they had to be applied again on January 1, 2024,” notes Romane Ballin, bond manager of Auris Management.

“The Stability Pact, enacted at the end of the 1990s, was thus “modernized” in order to be more realistic. The historic thresholds have been maintained: each country will always have to respect the limit of a deficit of 3% of its GDP and debt at 60%. However, the new rules are intended to be more flexible and adapted to the situation of each State, which will propose its own budgetary adjustment trajectory over at least four years in order to ensure the sustainability of its debt.. This agreement, which must now be adopted by the European Parliament, is good news for the ECB because it will make it possible to limit the expansion of budgetary policies whose inflationary effects are not negligible.”

For its part, the Dollar was under pressure from the market’s increasingly strong anticipation of a first drop in Fed Funds yields from March. The CME’s FedWatch tool now puts the probability of seeing the American monetary institution lowering key rates at 84.6% as early as March, in the wake of the downward revision of American growth, combined with the publication PCE prices last week.

“The idea that major central banks have certainly done enough to curb the 2022-23 inflationary surge is driving the recovery,” Brian Barish, chief investment officer of Cambiar Investors LLC, was quoted as saying by Bloomberg.

On the agenda this Friday, to follow in priority the Chicago manufacturing PMI index at 3:45 p.m. In terms of statistics on Thursday, weekly registrations for unemployment benefits have just increased slightly to 218,000 new units, without moving significantly away from the target. Current home sales stagnated in November, where the consensus was for a significant increase.

At midday on the foreign exchange market, the Euro was trading against $1.1080 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 positive in the medium term on the Euro Dollar (EURUSD).

Our entry point is at 1.1072 USD. The price target for our bullish scenario is $1.1459. To preserve the invested capital, we advise you to position a protective stop at 1.0924 USD.

The expected profitability of this Forex strategy is 387 pips and the risk of loss is 148 pips.

DAILY DATA CHART