EUR/USD: It’s dot plots day!

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The Euro remained under pressure against the Dollar, following the European elections, and in particular its consequences on French national politics alone. President Macron has in fact decided, in the wake of the results, to call the French in advance to the polls to renew the hemicycle. Negotiations between different camps, although historically in fundamental disagreement on a number of subjects, are ongoing.

As a corollary of these developments, the stress on the French debt increased a notch. The rating agency Moody’s warned on Tuesday of the risk linked to the legislative elections which will be organized in France in the coming weeks. The rating agency believes that this election “increases the risks on budgetary consolidation in France”, it indicated.

“Potential political instability constitutes a credit risk given the difficult budgetary situation that the next government will inherit,” added the agency, cited by Reuters, specifying that the currently “stable” outlook for France’s rating could be lowered to “negative” if debt indicators deteriorate further.

The other central point of interest for currency traders this Wednesday is naturally the outcome of a monetary policy meeting of the Fed (FOMC).

“Unsurprisingly, it will leave its rates unchanged but attention will focus on the overall tone of the press release…and especially on the new projections. These projections are carried out once a quarter and show the markets the new expectations, for 2024 and 2025 in particular, in terms of economic growth, unemployment rate and (surely the most important) inflation”, anticipates Alexandre Baradez (IG France).

The projections will in fact be scrutinized, just like the dot plots. The mechanics of this histogram are simple: the 12 voting members, under cover of anonymity, record their feelings about the level of Fed Funds for the next deadlines.

“If the overall tone of the Fed’s communication tomorrow evening, including Jerome Powell’s press conference, is “semi-hawkish”, the risk is to see US rates continue to rebound, which would add additional pressure on the bond market in Europe, already shaken by political issues.”

“If, on the contrary, the Fed’s communication is “semi-dove”, finally outlining the prospects of a first rate cut a little better, this will relax American rates and also offer a little breath of fresh air to the European bond market .”

The first scenario is favorable for the Dollar and the second for the Euro.

To be monitored at 2:30 p.m. retail prices in the United States, expected to rise monthly by 0.3% excluding food and energy. To follow at 8:00 p.m. the Fed’s decision, its verdict on rates, projections and dot plots, and at 8:30 p.m. the press conference.

At midday on the foreign exchange market, the Euro was trading against $1.0750 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. This test is underway, in conditions of challenging volatility. Negative review maintained.

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 1.0753 USD. The price target for our bearish scenario is at 1.0551 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0826 USD.

The expected profitability of this Forex strategy is 202 pips and the risk of loss is 73.000000000001 pips.

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