EUR/USD: Inflation returns to center stage

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Temporarily, a decorrelation, or even a short desynchronization of monetary policies on both sides of the Atlantic is envisaged, weighing on the Euro / Dollar currency pair which is painfully continuing the construction of a consolidation with a downward bias, above from an oblique angle that is itself bearish.

For the majority of them, currency traders are only considering one drop in federal rates between now and the end of the year. The reason is a very recent series of American macroeconomic figures which beat expectations, twisting the neck of the ideal scenario of a soft landing.

“Very recently, some once again strong figures for activity have reignited uncertainty,” notes Emmanuel Auboyneau, AMPLEGEST Associate Manager. “Consumer confidence is on the rise and the job market has once again shown signs of solidity. The contradictory speeches of the different members of the Federal Reserve are helping to confuse the message.”

Just yesterday, weekly registrations for unemployment benefits, still close to the floor of 200,000 new units, and monthly GDP beyond expectations, contributed to these tensions.

It is in this tense context, with concrete consequences on government bond yields, that currency traders will learn at 2:30 p.m. the PCE (personal consumption expenditures) prices, the Fed’s preferred inflationary gauge. Prices, excluding food and energy, are expected to increase monthly by 0.3%.

“In Europe things seem clearer,” explains Emmanuel Auboyneau, AMPLEGEST associate manager. “The economy remains weak despite a slight rebound and inflation is now close to desired levels. Of course, vigilance is still required on prices due to potential aggravating factors such as wages or raw materials, but the Central Bank European continues to communicate on a first rate cut in June and a factual and pragmatic analysis thereafter. A temporary decorrelation of monetary policies is likely in the short term but it cannot persist over time.

Today is the last day of the month and EuroStat offers its traditional first estimates of consumer prices in the Euro Zone. On an annual basis, excluding volatile elements, prices increased by 2.9%, against a target of 2.7%. Inflation, on both sides of the Atlantic, is once again becoming a central subject.

At midday on the foreign exchange market, the Euro was trading against $1.0840 approximately.

KEY GRAPHIC ELEMENTS

The currency pair recorded a double top at $1.0885 which further asserts itself as a resistance level, below which the bearish bias can regain its rights. Especially in the event of rapid reintegration of the lower part to an oblique (drawn in black), a major graphic reference point.

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