EUR/USD: Retest of the 20-day moving average

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Not only did the statistics on American prices (PPI and CPI) published last week definitively close the door to the start of monetary normalization in March, but pushed back expectations of a first reduction in Fed Funds.

In detail, producer prices (PPI) increased more than expected, by 0.3%, compared to a more modest increase of 0.1% expected by the market. Prices are therefore rising again over one month, after having fallen by 0.1% in December. Over one year, they increased by 0.9% against +0.6% expected by the consensus. On Tuesday, prices but this time on the consumer side (CPI) had already tensed the markets. The latter appreciated at an annual rate of 3.1%, a slowdown in inflation that was much less significant than market expectations, at 2.9%.

“After the upward surprise on consumer prices (CPI) last week, producer prices also surprised upwards in January. This shows that the normalization of the price of goods, which explained the rapid decline in inflation last year, is rather behind us”, explains Xavier Chapard of LBPAM.

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 the European monetary policy.

Note the closure of Wall Street this Monday due to a public holiday.

At midday on the foreign exchange market, the Euro was trading against $1.0780 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 1.0774 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 1.0876 USD.

The expected profitability of this Forex strategy is 338 pips and the risk of loss is 102 pips.

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