EUR/USD: The SNB and the BoE are pushing down the Euro

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The Euro turned sharply downward yesterday, after the decisions of the SNB (National Bank of Switzerland) and the Bank of England. Decisions, accompanied by a dovish tone, which raises the possibility of an unprecedented scenario: that of a reduction in pan-European rates, before federal rates.

The National Bank of Switzerland has opened the door to rate cuts by major Western central banks. If some economists had counted on such a movement, the consensus rather held the month of June for a first cut. The Swiss monetary institution has decided to reduce its main rate by 25 basis points to bring it down to 1.5%. “With the Bank becoming more accommodating and inflation likely to be lower than forecast, we continue to forecast two further rate cuts this year,” writes Capital Economics.

The Bank of England held its interest rate but indicated it was ready for monetary easing. “We currently believe the Bank will cut interest rates from August, although markets believe there is a greater chance it will do so in June following today’s meeting ‘today’, say the Nomura economists.

“The latest inflation publications show that core inflation (excluding food and energy) continued to fall to 4.5% in February (compared to 5.1% in January) and that overall inflation returned to 3.4% in February after peaking at more than 11% in October 2022. Not enough to trigger another rate cut from the Bank of England (the main rate is still at 5.25%, i.e. on the levels of 2008), underlying inflation is still a good distance from the 2% target, but the monetary institution declared yesterday that “things are moving in the right direction”, commented Alexandre Baradez (IG France)

As a reminder, the Euro, as a barometer of risk appetite on financial markets, rose in the middle of the week at the end of the Fed’s FOMC, suggesting quite clearly the possibility of a drop in the remuneration of Fed Funds from June.

Immediately, currency traders have just become aware of the publication of the IFO business climate index in Germany, the leading economic power in the Euro Zone. The index rose to 87.8, above expectations. The business cycle clock tool still positions Germany in the Crisis zone, with a trajectory towards economic recovery.

Yesterday, investors took note of the PMI indicators, activity barometers calculated after a survey of purchasing directors. The results are very mixed Euro Zone. In first estimates for the current month, the industrial PMI (45.7) comes out clearly below expectations due to the German component, while the services PMI, conversely, pleasantly surprises by returning significantly above the 50 point mark, synonymous with expansion, at 51.1, beyond expectations.

Across the Atlantic, RAS concerning weekly registrations for unemployment benefits, still very close to the floor of 200,000 units. On the other hand, the Philadelphia Fed’s manufacturing index pleasantly surprised, in positive territory at 3.2, while the consensus predicted a decline into the red.

To follow the speech by J Powell at 2:00 p.m. The Fed boss is scheduled to deliver the opening speech at a ‘Fed Listens’ event in Washington DC.

At midday on the foreign exchange market, the Euro was trading against $1.0820 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 1.0819 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 1.0758 USD.

The expected profitability of this Forex strategy is 324 pips and the risk of loss is 61 pips.

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