EUR/USD: The update of dot plots, THE meeting of the week

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The Euro, one of the most reliable market barometers for measuring the dynamics of risk appetite, fell back below its 20-day moving average (in dark blue), while currency traders remained on the defensive before the emerging tomorrow from a new Fed Monetary Policy Committee. This FOMC will certainly close with a monetary status quo but three very important elements will be scrutinized. The Fed’s new economic projections, particularly in terms of growth and inflation, the elements of language used in press conferences, and… the famous dot plots, this dot histogram published each quarter. The mechanism is simple: the 12 voting members, under cover of anonymity, register their feelings about the level of Fed Funds for the next deadlines.

“Faced with these inflation figures [CPI et PPI] and according to the CME Group’s FedWatch barometer, the probability of a FED rate cut in June rose on Friday to around 55% compared to 75% last week” notes Sébastien Grasset, director of AM at Auris Gestion. ” The market is now counting on 3 reductions in 2024, in line with the Fed’s scenario. Furthermore, Wednesday’s Fed meeting should provide us with more precise answers. No change is expected at the level of key rates (range of 5.25-5.50% maintained) but the update of the economic scenario and in particular of the “dots plot” (3 so far) of the institution will be essential.”

Immediately, currency traders took note this morning of the ZEW confidence index in the German economy, in clear recovery, at 31.7 points, well beyond expectations.

“Economic expectations for Germany are improving significantly. At the same time, more than 80% of respondents expect the ECB to cut interest rates over the next six months. This could explain the more optimistic outlook for the German construction sector”, comments ZEW President Professor Achim Wambach on the survey results. “The German export sector is benefiting from increased economic expectations towards China as well as the expected depreciation of the dollar against the euro. At the same time, the assessment of the economic situation remains at a very high level. low. This data somewhat puts increased economic expectations into perspective.”

At midday on the foreign exchange market, the Euro was trading against $1.0845 approximately.

KEY GRAPHIC ELEMENTS

Consistent with our previous papers, we build a bullish position, which we maintain as long as the 20-day moving average (in dark blue) gravitates above the 50-day moving average (in orange).

MEDIUM TERM FORECAST

Considering the key graphical factors that we have mentioned, our opinion is positive in the medium term on the Euro Dollar (EURUSD).

Our entry point is at 1.0846 USD. The price target for our bullish scenario is $1.1068. To preserve the invested capital, we advise you to position a protective stop at 1.0749 USD.

The expected profitability of this Forex strategy is 222 pips and the risk of loss is 97 pips.

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