EUR/USD: Our trailing stop is still valid

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The Euro recovered slightly against the Dollar, gradually digesting Tuesday’s publication of American inflation figures according to the CPI.

As a reminder, and in detail, prices across the Atlantic, food and energy included, increased at an annual rate of 3.1%, i.e. a much less significant slowdown in inflation than the target would suggest, at 2.9%. . Enough to further reduce hopes of cumulative declines in Fed Funds yields over the year 2024. The firmness (understanding the persistent tensions) on the job market, as well as the thorny issue of rents (they are part of the calculation methodology) largely explain these worrying figures.

So-called core inflation, which excludes volatile food and energy prices, remains stable at 3.9% over one year, where the consensus compiled by the Wal Street Journal also counted on a weaker progression, of 3.7%.

For Joshua Jamner, analyst at ClearBridge Investments, a subsidiary of Franklin Templeton, this publication definitively closed the door [cloué le cercueil, si l’on traduit littéralement ! ] to a rate cut in March “and will probably lead to a new debate around a “no landing” or overheating scenario. The process of disinflation is however not a straight line, and a single isolated result after a long series of more favorable releases does not represent a new trend. Fed funds futures now price in a less than 50% chance of a rate cut in May, with the first cut fully priced in June and a total of 3 .8 reductions in 2024.”

Producer prices, a leading indicator of inflation, will be monitored this Friday at 2:30 p.m. (Paris time).

On the ECB side, the chances of a rapid and early rate cut are slim. If April is still on the table, Nomura analysts and strategists are opting instead for June for the scenario of a first loosening of the monetary tap. “We believe that the ECB’s new macroeconomic projections in March, as well as the data released between now and the April meeting, will not be enough to prompt the ECB to start cutting rates in April. Instead, we believe that the Council of governors will ultimately decide to delay the rate cut until the June meeting”, they specify.

“While our base case scenario is that the ECB cuts rates in increments of 25 basis points, we believe that the longer the ECB waits, the more likely it will decide to start its reduction cycle with more aggressive rate cuts. 50 basis points in order to get closer to neutrality more quickly. This is, in our opinion, the most significant risk weighing on our ECB rate forecast” they add in a note on policy European monetary policy.

Also to be monitored on the statistical side for this final part of the week, the consumer confidence index (U-Mich, preliminary data), expected to rise very slightly to 80 points.

At midday on the foreign exchange market, the Euro was trading against $1.0770 approximately.

KEY GRAPHIC ELEMENTS

The graphical and technical situation is trending below the 20-day moving average (in dark blue). However, the angle of attack is not very important. This trend line, which is accelerating downward, will conveniently serve as a trailing stop (trailing stop). In the immediate future, the acceleration in volatility reassures us in this graphic scenario.

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 1.0768 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 1.0871 USD.

The expected profitability of this Forex strategy is 332 pips and the risk of loss is 103 pips.

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