EUR/USD: At the end of the wedge

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Dead calm on the Euro/Dollar currency pair this Monday, the currency pair completing the outline of a short wedge while Fed executives (Bowman and Barkin) will speak this Monday, and the day before of the publication of consumer price figures in the United States. Potentially important information for refining the cumulative extent of federal rate cuts over the whole of 2024.

Regarding American inflation, prices are expected to increase by 2.9% year-on-year, food and energy included. See you tomorrow at 2:30 p.m. to read the publication. Forex traders will also appreciate, if applicable, the deviation from the target of the ZEW index of confidence in the German economy, an index expected to rise to 17.4 points.

“The Fed is still at 5.25%-5.50% with a lack of visibility on the date of the first rate cut as well as the pace of rate cuts in 2024. The market continues to anticipate 5 rate cuts from the Fed this year, via Fed Futures Funds, while the Fed in its December projections anticipated only 3 cuts of 25 basis points”, notes Alexandre Baradez, market analyst for IG France.

At the end of last week, the Euro remained struggling due to chronic questions about the health of industry in the monetary union. Following the production volume figures in Italy published this morning, Nomura analysts make the following observation:

“Based on 87.5% of the national data received so far (Italian data included, therefore), production growth in the euro zone was perfectly zero month-on-month for December 2023. Certainly after two months of contraction but this masks significant heterogeneity. In December, France and Italy contributed strongly to the increase, both up 1.1%. However, Germany more than offset both increases with a decline of 1.1%. .2% month-on-month. The weakness is particularly acute for intermediate goods compared to pre-pandemic levels.”

At midday on the foreign exchange market, the Euro was trading against $1.0780 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 line. However, the angle of attack is not very important. This trend curve, the first mentioned, which accelerates downward, will conveniently serve as a trailing stop.

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 1.0774 USD. The price target for our bearish scenario is at 1.0436 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0881 USD.

The expected profitability of this Forex strategy is 338 pips and the risk of loss is 107 pips.

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