EUR/USD: The single currency takes a breather

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It is now almost a done deal: the latest US inflation figures in the sense of consumer prices have definitively tipped the balance in favour of the scenario of a first federal rate cut at the start of the school year. Combined with the ISM Services, the previous week, and a NFP report on employment without waves, this publication leaves, why not, the field open to a second rate cut in 2024, at the end of the last meeting of the Monetary Policy Committee of the year. The Dollar mechanically sees its “remuneration” potential fall against the Euro, the single currency giving itself a nice breather.

The specific components of inflation that are showing signs of decline are precisely those that the Fed and markets have been focusing on. In particular, services inflation continues to moderate, with housing inflation increasing by only 17 basis points month-on-month, compared to 40 basis points in the previous month: this is the inflation most feared by the Fed and it is finally showing signs of moderation,” reacted Florian Ielpo, head of macroeconomic research at Lombard Odier Investment Managers.

Consumer prices showed signs of easing in June, according to the latest data from the Commerce Department. Inflation slowed more than expected in June, to 3% year-on-year, compared with the consensus forecast of 3.1% and down from 3.3% in May. More importantly, the housing price index rose just 0.2%, its slowest gain in three years.

It is in this context that traders will follow this Monday the intervention of the President of the Fed, J Powell, at the forum of the Economic Club of Washington. A question and answer session is also on the program. Also to follow the Empire State manufacturing index at 2:30 p.m.

On European monetary policy, Nomura strategists expect that “the European Central Bank’s decision on July 18 should go smoothly.” [avec un statu quo surles taux]And [s’attendent] that the guidelines are consistent with those of Sintra. The questions and answers should focus on the possibility of a further reduction in September or on the persistence of concerns about the maintenance of inflation in services.”

In France, the political calendar looks set to be busy, with the expected resignation of the Attal government at the end of tomorrow’s Council of Ministers and the election of the President of the National Assembly on July 18. No Prime Minister has yet been agreed upon on the left. Joseph V. Amato – President and CIO – Neuberger Berman Equities, however, is reassuring: “The lack of parliamentary consensus raises longer-term challenges, but the immediate threat to France’s fiscal stability has dissipated. French and Italian government bond spreads are wider than they were five weeks ago and the French stock market has faltered, but European equities in general and credit spreads have held up well.”

At midday on the foreign exchange market, the Euro was trading against $1,0915 approximately.

KEY GRAPHIC ELEMENTS

In a strong volatility in week 27, the Euro / Dollar currency pair regained the upper part of a bearish oblique line, constituting a short-term oxygen supply. The technical signals are contradictory in the immediate future and do not allow a serene position-taking. In any case, we are suspending our sell lines. We are currently witnessing a test of a resistance level located at $1.0885.

MEDIUM TERM FORECAST

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

We will maintain this neutral opinion as long as the Euro Dollar (EURUSD) parity rates are positioned between the support at 1.0758 USD and the resistance at 1.1012 USD.

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