EUR/USD: Technical analysis calls for caution

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The probable decoupling (or at least the probable decorrelation) between monetary policies on both sides of the Atlantic continues to favor the Dollar, with the currency pair remaining under pressure under an oblique line (resistance level in black below).

On the one hand, “internal growth [des Etats-Unis] is still vigorous, particularly in services, while consumption of goods has not contributed. The job market shows no sign of weakness at this stage.”

On the other hand, “the European situation is not comparable with sluggish growth, even if it shows signs of trembling, and inflation quite close to the desired 2%. The European Central Bank therefore has more latitude to begin its cycle monetary easing.”

The scenario of a reduction in European rates before federal rates – which would constitute a historic first – should be seriously considered. Beyond that, it is the comparative trajectory of rate declines on both sides of the Atlantic which is in full redefinition.

This backdrop must be nuanced.

“If a first rate cut [de la BCE] in June therefore seems to be materializing, the continuation of the monetary easing schedule remains uncertain at this stage”, nuance Romane Ballin (Auris Gestion). “The recent rebound in activity in Europe (GDP up 0.3% in Q1 in the euro zone) argues for a gradual and cautious approach. There are also numerous debates within the institution, with some worrying about the consequences for the exchange rate in the event of a prolonged divergence between key rates on both sides of the Atlantic.”

And above all, the scenario of two cuts in Fed Funds, once dismissed by the market, is gradually coming back into play.

According to the CME Group’s FedWatch tool, they expect more than 60% of two key rate reductions by the end of December from the American central bank.

“New York Fed President John Williams said there are signs that households are more cautious in their spending, and he expects rate cuts eventually, although the decision to lower them will depend on all the available data,” report analysts from Natixis CIB Research, cited by Agence France Presse.

“Thus, the Fed could start lowering rates as soon as the summer break ends,” they add.

On the agenda this Wednesday, to follow across the Atlantic wholesaler stocks at 4:00 p.m. and crude oil stocks at 4:30 p.m. Yesterday, retail sales in the Euro Zone, up monthly by 0.8% in March, exceeded the consensus by 0.2 basis points.

At midday on the foreign exchange market, the Euro was trading against $1.0750 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 currency pair EURUSD, especially since the break of the 50-day moving average (in orange) by its 20-day counterpart (in dark blue) took place 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, under an oblique line of resistance (in black).

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 1.0748 USD. The price target for our bearish scenario is at 1.0436 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0841 USD.

The expected profitability of this Forex strategy is 312 pips and the risk of loss is 93.000000000001 pips.

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