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A wait-and-see attitude prevailed on the Euro/Dollar currency pair, without much change at midday, within a short-term bearish bias, with traders reserving their initiatives, if any, for tomorrow and the outcome of the meeting of the Fed’s Monetary Policy Committee. This FOMC, if it should in all likelihood end with a status quo on rates per se, could have a valuable advantage: that of containing clues on the timetable for the reduction of Fed Funds over the year 2024… In In any case, the Fed is in a particularly comfortable position, with rates at the top and a thriving economy.
“The Fed can boast of having time to act,” appreciates Thomas Giudici, head of bond management at Auris Gestion.
“American growth for the fourth quarter of 2023 thus came out very well above expectations at 3.3% at an annualized rate compared to a forecast of 2%. Given the restrictive context of monetary policy, the American economy is all truly exceptional! Driving growth, household consumption is more than resilient, with even an acceleration in services. Americans have clearly benefited from the increase in their real wages thanks to the ongoing disinflation movement, with PCE inflation increasing from 2.6% to 1.7% on an annual basis over the quarter.”
Should we understand that the downward shift in rates will occur at the very beginning of the second half?
If the Fed will naturally have to follow the fall in inflation by lowering its rates, the solidity of growth also allows it to take its time. A first rate cut in March is therefore no longer relevant for investors, with expectations of a drop now being only 49% compared to 89% (only) a month ago…
The Fed’s comments, at a press conference tomorrow, will be particularly followed, dissected, and interpreted in this sense.
At midday on the foreign exchange market, the Euro was trading against $1.0840 approximately.
On the macroeconomic agenda this Tuesday, to follow in priority, on the American side, the S&P real estate price index at 3:00 p.m., the consumer confidence index (Conference Board) and new job offers (JOLTS) at 4:00 p.m.
KEY GRAPHIC ELEMENTS
Interestingly technical fact, the 20-day moving average (in dark blue, bearish), is currently breaking its 50-day moving average (in orange, horizontal), i.e. a first contact since November 13. The graphic and technical situation is tensing under this trend line.
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 1.0839 USD. The price target for our bearish scenario is at 1.0551 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0941 USD.
The expected profitability of this Forex strategy is 288 pips and the risk of loss is 102 pips.
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