EUR/USD: The Dollar gains a few pips before the outcome of the FOMC

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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 status quo monetary 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 increased 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.”

The decoupling of economies between the United States and the Euro Zone must be taken into account here by currency operators. “The Fed has no reason to rush,” for Christopher Dembik, investment strategy advisor at Pictet AM. “The economy is holding up. Growth should reach 2% in the first quarter. The job market is doing well. Hiring should be stimulated by the public sector due to a later post-covid recovery than in the sector Finally, sustained inflation militates in favor of sustainably high short-term rates.”

Elements of response this Wednesday at 7:00 p.m. for the monetary policy decision itself and at 7:30 p.m. for the press conference.

At midday on the foreign exchange market, the Euro was trading against $1.0840 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). The difference between these two curves is small.

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 1.0842 USD. The price target for our bullish scenario is $1.1143. To preserve the invested capital, we advise you to position a protective stop at 1.0763 USD.

The expected profitability of this Forex strategy is 301 pips and the risk of loss is 79 pips.

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