EUR/USD: From one Bollinger band to another…

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The Euro, one of the most reliable barometers of risk appetite in financial markets, continued to rebound against the Dollar, on the heels of encouraging figures on the trajectory of inflation on this side of the Atlantic.

Excluding volatile elements (food, energy, alcohol and tobacco), prices increased in March at an annualized rate of 2.9% compared to 3.0% expected and February at 3.1%. A slowdown in inflation confirmed, therefore, in the Euro Zone, which places the ECB in a slightly more comfortable situation in the short term than its American counterpart which must face some signs of warming in the world’s largest economy.

Pragmatic, J Powell, the head of the Fed, will have to remain so throughout the process of lowering rates, the start of which in June is not yet certain.

“February US PCE figures appeared more or less in line with expectations. However, the annualized three-month underlying PCE increase of 3.5% (compared to 2.6% in January) could give the Fed food for thought” notes César Perez Ruiz, Head of Investments and CIO at Pictet Wealth Management.

“Moreover, the rally in markets and resumption of M&A suggest not-so-bad financing conditions despite successive rate hikes. While Fed Governor Christopher Waller said he sees ‘no urgency’ to lower rates, questions will continue to arise about the timing and extent of monetary easing in the United States in the months to come.”

The president of the Atlanta Fed, Raphael Bostic, estimated on Wednesday that the persistence of inflation risked forcing the American central bank to only lower its rates at the end of the year.

One of the key potential sources of inflation is employment, due to its degree of tension. However, the week is rich in benchmarks on this point, with the highlight tomorrow being the NFP report, and the traditional weekly registrations for unemployment benefits today at 2:30 p.m. Yesterday the survey by the private firm ADP highlighted the creation of 184,000 positions in the private sector in March, more than the 150,000 anticipated by consensus and the 155,000 positions created in February.

“The job market remains solid and not conducive to a significant moderation of wages. However, they have recently limited their progression, to around 4%. This variable remains fundamental in the eyes of the Federal Reserve which seeks to prevent a inflation through wages, more difficult to curb”, for Emmanuel Auboyneau, Managing Partner Amplegest.

Note that the ISM Services, in final data for March in the Euro Zone published this morning, slightly exceeded the first estimates, coming out at 51.5 points.

At midday on the foreign exchange market, the Euro was trading against $1.0860 approximately.

KEY GRAPHIC ELEMENTS

While the currency pair regains support on the lower limit of the Bollinger bands (20;2.5) and the 20-day moving average (in dark blue) still gravitates above its 50-day counterpart (in orange ), the opinion remains bullish. We will target the upper Bollinger band, currently in the immediate vicinity of $1.1 per €.

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 1.0860 USD. The price target for our bullish scenario is $1.1069. To preserve the invested capital, we advise you to position a protective stop at 1.0764 USD.

The expected profitability of this Forex strategy is 209 pips and the risk of loss is 96 pips.

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