EUR/USD: Subject to antagonistic forces

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The Euro/Dollar currency pair was upset last week, subject to opposing forces. On the one hand, the willingness of the major central banks to begin their cycle of rate cuts this year puts pressure on the single currency, whose “remuneration”, dynamic against the Dollar, risks diminishing. Indeed, and this would be a historic first, the European Central Bank could be ahead of its American counterpart, the Fed, in starting to loosen the monetary tap.

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.

For its part, the Bank of England maintained its interest rate but indicated that 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.

Earlier last week, the Fed fully reassured the financial community by confirming that the scenario of three federal rate cuts held up, and that inflation continued, on trend, to decrease, despite some “stirs”. A status quo on rates for this maturity was confirmed, as widely expected.

These decisions and remarks, accompanied by a dovish tone, which raise the possibility of an unprecedented scenario: that of a reduction in pan-European rates, before federal rates.

On the statistical side, on Friday, currency traders took note of the IFO business climate index in Germany, which rose to 87.8, beyond expectations. The business cycle clock tool still positions Germany in the ‘Crisis’ box, with a trajectory towards the ‘Economic Recovery’ box.

Not much to get your teeth into this Monday, apart from new home sales in the United States at 3:00 p.m. The agenda will become denser

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 1.0692 USD.

The expected profitability of this Forex strategy is 324 pips and the risk of loss is 127 pips.

DAILY DATA CHART