EUR/USD: Towards a status quo on federal rates in June

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The Dollar kept the advantage against the Euro on Thursday, the day after a Fed FOMC which only reinforced the idea of ​​a high level of remuneration for the Fed Funds for a long time. This Monetary Policy Committee unsurprisingly ended with a monetary status quo. And the Monetary Institution has clarified that it is not considering lowering rates as long as inflation does not fall more significantly. For the June FOMC, we should once again expect a status quo. The CME Group’s FedWatch tool puts this scenario at more than 91% probability.

“The market considers […] the fight against inflation as a priority and now only anticipates a reduction in the Fed’s key rate by the end of the year, far from the almost 7 at the start of the year”, notes Thomas Giudici , head of bond management at Auris Gestion.

But the worst is gone. The worst ? It would be – no it is not taboo – a final rate increase… “The president notably rejected [cette idée] noting: “I think it is unlikely that the next policy rate move will be an increase.” The markets welcomed this comment,” notes Xiao Cui, Senior Economist at Pictet Wealth Management.

“We expect a gradual slowdown in inflation and a slight slowdown in demand (to a still solid pace) to lead the Fed to ease rates twice this year, but risks are tilted toward more cuts late and fewer this year and next year Strong domestic demand and high inflation suggest the Fed will take a patient approach to policy adjustment.”

In terms of statistics, currency traders have taken note of the first estimates of consumer prices in the Euro Zone. Excluding food, energy, alcohol and tobacco, prices increased by 2.7% at an annualized rate, slightly above the target (+2.6%), still confirming a slowdown in inflation. Note across the Atlantic that the labor cost index (+1.2%), a leading indicator of inflation, came out above expectations, causing a negative reaction on futures as the opening approached on Tuesday . Among other statistics published between Tuesday and Wednesday, some were rather reassuring, such as a consumer confidence index below expectations, while others were rather worrying, such as the ADP survey on job creations. Verdict Friday with the federal NFP (Non Farm Payrolls) report.

To follow the weekly registrations for unemployment benefits in the United States at 2:30 p.m.

Immediately, currency traders took note of the PMI barometers of industrial activity in the Euro Zone, without much difference compared to the first estimates for April, at 45.7. This barometer has remained below the 50 point mark since August 2022.

At midday on the foreign exchange market, the Euro was trading against $1.0700 approximately.

KEY GRAPHIC ELEMENTS

THE pullback very clear Thursday 04/18 on a resistance zone ($1.0693) will invite people to take short positions again on the EURUSD currency pair, especially as the break of the 50-day moving average (in orange) by its counterpart at 20 days (in dark blue) was made at a relatively large angle. The succession of high points (12/28, 03/08, 03/21, 04/09 and 04/26) is now clearly decreasing.

MEDIUM TERM FORECAST

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

Our entry point is at 1.0701 USD. The price target for our bearish scenario is at 1.0436 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0801 USD.

The expected profitability of this Forex strategy is 265 pips and the risk of loss is 100 pips.

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