EUR/USD: Slow slide of the EURUSD spot

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In light of the contraction in the appetite for risk on the financial markets, the Euro continued its slow slide against the Dollar, the day after a Fed FOMC which clearly dashed hopes of a downward trend on rates in March, or even May. The majority of currency traders are now looking towards the June meeting for the start of a loosening of the monetary tap.

The CME Group’s FedWatch tool gives, without the slightest ambiguity, a 100% probability of monetary easing, whatever the extent, in June.

It must be said that with a particularly resilient economy, and inflation on the verge of being brought under control without its objective being achieved, the Fed has room for maneuver and time (a luxury!) to act.

Paul Mielczarski, Head of Global Macro Strategy at Brandywine Global, a subsidiary of Franklin Templeton, comments on the outcome of the Fed meeting:

“The FOMC removed tightening bias from its statement, confirming that growth and inflation risks are more balanced. However, the Fed also warned that it needed more evidence that inflation is moving closer by 2% before rates can be cut. This statement reduces the chances of a rate cut in March.”

“However, we already have ample evidence that inflation and labor markets are normalizing after the pandemic-related shocks. The U.S. economy is moving closer to equilibrium, with real GDP growth of around 2% and 2% inflation. By gradually reducing the policy rate in response to falling core inflation, the Fed should be able to successfully normalize restrictive monetary policy settings. this adjustment could be delayed by a month or two, but we remain confident.” continued Paul Mielczarski.

The Fed remains attentive to tensions on employment. Employment is the topic throughout the week, culminating tomorrow in the federal NFP (Non Farm Payrolls) report, on the health of private employment for the month of January. We will carefully monitor the weekly registrations for unemployment benefits this afternoon, expected at 213,000 new units, a level still close to 200,000. Note yesterday the relative good news on Wednesday with the preview that constitutes the survey of the private human resources firm ADP (Automatic Data Processing) with job creations (107,000) clearly below the target.

On this side of the Atlantic, note a slightly less severe slowdown in inflation in the Euro Zone than expected, despite encouraging signs in Germany and France. Prices excluding food, energy, alcohol and tobacco increased by 3.3% year-on-year in January, according to the very first estimate from EuroStat. Final data will be available on February 22.

At midday on the foreign exchange market, the Euro was trading against $1.0790 approximately.

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), a first contact since November 13. The graphic and technical situation is tensing under this trend curve.

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 1.0801 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 250 pips and the risk of loss is 140 pips.

DAILY DATA CHART