EUR/USD: American monetary policy and French policy excite the currency pair

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“Semi-dove” in his attitude and his elements of language, J. Powell, President of the Fed, gave some momentum to the Euro / Dollar currency pair after the press conference concluding the meeting of his Committee of Monetary Policy. But it was above all the publication, a few hours earlier, of retail prices lower than expected, which gave some vigor to the single currency, the reference barometer of risk appetite. CPIs that the head of the Fed will not have failed to comment on… However, a scenario of a single rate cut by the end of the year, probably in September, holds the line.

The Fed unsurprisingly, therefore, opted for the monetary status quo, by adjusting its monetary projections, and publishing, like every quarter, its dot plots, this dot histogram showing, under cover of anonymity, the intentions of the voting members of the Fed for the next deadlines, in terms of rates.

And that’s the paradox, J Powell’s tone appeared reassuring if not frankly accommodating, but this dot graph “took a “hawkish” turn”, its median projection “no longer indicating that only one rate cut in 2024, compared to the three cuts previously anticipated in March.”, comments Whitney Watson, Co-Head & Co-CIO, Fixed Income & Liquidity Solutions at Goldman Sachs Asset Management.

“While slowing core CPI inflation may ease some of the hawkish market sentiment fueled by last Friday’s strong jobs data, the Fed’s path to a rate cut depends on the continued easing of inflation and the continued rebalancing of the labor market.”

According to the CME Group’s FedWatch tool, the probability of a drop in Fed Funds remuneration is 61.50% for the September deadline.

Currency traders also continue to monitor the political situation in France. The President of the Republic, Emmanuel Macron, spoke at the end of the morning, justifying his decision to dissolve the Assembly after noting a “blockage”. The tenant of the Elysée called on political forces “who do not recognize themselves in the extremist fever” to come together and establish consensus. On the other hand, he ruled out a resignation in the event of an electoral setback after the result of the legislative elections.

“The risk imagined by the financial markets would be an RN program accentuating the public deficit,” explains David Taieb, CIO – Listed Assets at Sienna IM.

“While Bruno Le Maire has been trying to convince, for months, the European Commission of its ability to reduce the French deficit below 3% of GDP, here is “potentially” the RN program which could spend more and more more causing an increase in French debt and a surge in the deficit towards 6% of GDP We could then happily imagine that French 10-year borrowing rates would reach the symbolic bar of 4% (indicative sustainability level), leading to this. a shock to the French economy, in particular the banking environment and the financing of SMEs and VSEs.”

Forex traders will carefully follow the producer price figures this afternoon, and the new weekly registrations for unemployment benefits in the United States, at 2:30 p.m.

At midday on the foreign exchange market, the Euro was trading against $1.0800 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 volatility that are challenging. 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 1.0803 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 1.0886 USD.

The expected profitability of this Forex strategy is 252 pips and the risk of loss is 83 pips.

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