EUR/USD: Yours to be honored, Madame Lagarde

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Ms. Christine Lagarde, will you precede Mr. Jerome Powell to initiate the movement to lower rates? This is essentially the question posed by currency traders who work with the Euro/Dollar currency pair. This would be a historic first, even if the history of the Euro is very young. In any case, on paper, the room for maneuver available to the President of the European Central Bank appears greater. And this is due to a recent series of American macroeconomic statistics that are “too” firm, on employment, consumption, wealth creation, production, and orders for durable goods in particular.

The ECB, which is meeting its Board of Governors next week, “cannot go back any further”, in the words of Thomas Giudici, head of bond management at Auris Gestion. “The ECB has almost committed to this: it will lower key rates at its monetary policy meeting next week. Any other decision would be catastrophic for the markets which are unanimously anticipating this movement.” After which a break in July should be in order.

“As Philip Lane, the ECB’s chief economist, recalled, monetary policy should remain restrictive until 2025. But with key rates at 4% for a neutral rate estimated at 2.5%, the ” margin is significant” according to François Villeroy de Galhau.”

Next FOMC (Fed Monetary Policy Committee) on June 12, which will also be closely followed because it will be accompanied by the updating of economic projections. For the rates themselves, a status quo is almost established, with a 99% probability according to the CME FedWatch tool. The valuable tool, which makes it possible to gauge the probabilities of changes in federal rates and American monetary policy based on the price of 30-day federal funds futures contracts, estimates that the chances of a loosening of the monetary tap for the FOMC deadline at the end of July.

“The PCE core index for the United States is the main statistic of the week,” says Christopher Dembik, investment strategy advisor at Pictet AM. “This is the preferred measure of inflation by the US Federal Reserve (Fed). Based on producer prices and consumer prices in April, we expect an increase of 0.25% month-on-month “It’s still too high to consider an imminent rate cut, in June or July for example. With the prospect of the US presidential election in November, the window of opportunity to ease monetary policy is reduced.”

Until then, currency traders will have other benchmarks of choice, such as consumer confidence on Tuesday (Conference Board), GDP and weekly registrations for unemployment benefits. On the European side yesterday morning, only one important statistic to report, the IFO business climate index in Germany, the Euro Zone’s leading economy, stable at 89.3, very slightly below expectations.

At midday on the foreign exchange market, the Euro was trading against $1.0880 approximately.

KEY GRAPHIC ELEMENTS

On large-scale marubozu, the currency pair shattered the technical resistance level constituted by the bearish oblique drawn in black. A recovery is underway, which may ultimately result in a pullback. The conditions in terms of entry point are not met to immediately build a position on the currency pair.

MEDIUM TERM FORECAST

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

We will maintain this neutral opinion as long as Euro Dollar (EURUSD) prices are positioned between support at 1.0758 USD and resistance at 1.0885 USD.

DAILY DATA CHART