EUR/USD: The Euro goes down the elevator

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The Euro/Dollar remained under strong pressure since the election of Donald Trump as President of the United States, due to the expansionist nature of his program, considered inflationary by many operators. Already in turmoil, the American 10-year saw a sharp acceleration in the wake of the announcement of the result of the presidential election. After peaking at 4.44% last week, the sovereign bond is down a bit to 4.35% this morning.

“Lower fiscal policy, stronger economic growth and higher consumer prices in the event of significant tariffs would likely force the US Federal Reserve (Fed) to limit monetary policy easing relative to initial expectations “, warns Dr. Felix Schmidt – senior economist and Dr. Holger Schmieding – chief economist at Berenberg. “It would therefore be possible that the Fed only lowers its key rate twice in total this quarter and next quarter, instead of four, by 25 basis points each time. In this case, the range of key rates at the end of the easing cycle would be 4.25% to 4.5% instead of the 3.75% to 4.0% currently planned.”

The Fed, in fact, concluded a new meeting of the Monetary Policy Committee last week, with the name of the next President of the United States in mind. The Federal Reserve led by J Powell unsurprisingly decided to lower the yields on its Fed Funds by 25 basis points.

“Inflation expectations and, in particular, real yields have risen since the Fed began cutting rates in September,” commented William Zox, Portfolio Manager, Brandywine Global (part of Franklin Templeton). “I don’t think the Fed will cut rates in December or January, but it will be up to the Treasury market to convey that message to the Fed, rather than the other way around.”

Indeed, “Trump’s potentially expansionary economic policy could encourage the Fed to adopt an even more restrictive posture to counter inflation”, adds Andrea Tueni, Head of Sales Trading at the Saxo Banque France office. Because if inflation expectations are to be revised upwards, it is the anticipation of the shape of the rate trajectory which is mechanically modified.

For its part, the Euro suffered from fears on the commercial and customs levels on the one hand, and geopolitical on the other hand while the United States is still formally chaired by J Biden, but Trump’s diplomatic teams are speaking with their future counterparts.

In this context, currency traders took an anxious look at the ZEW confidence index in the German economy, which fell to 7.4, far from expectations (13.2). “The economic expectations score for Germany was overshadowed by Trump’s victory and the collapse of the German government coalition,” comments President Professor Achim Wambach.

“In the current survey, economic sentiment has worsened – and the result of the US presidential election is probably the main reason. The fact that economic expectations for the United States are clearly increasing, while Economic sentiment towards China and the Eurozone is falling, supporting this view. However, more optimistic voices were heard in the final days of the survey, expecting an improvement. “Germany’s economic outlook ahead of early elections. Overall, we are currently seeing a very volatile development in sentiment.”

In terms of statistics, there was nothing to sink your teeth into yesterday Monday, at the dawn of a week that was nevertheless rich in this regard. Operators will be able to see consumer prices in the United States tomorrow, as well as retail sales on Friday.

At midday on the foreign exchange market, the Euro was trading against $1.0620 approximately.

KEY GRAPHIC ELEMENTS

The currency pair has just come out from the bottom, in intense volatilityof a wedge pattern, which confirms the bearish bias, which is now fundamental. 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 1.0618 USD. The price target for our bearish scenario is at 1.0239 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0726 USD.

The expected profitability of this Forex strategy is 379 pips and the risk of loss is 108 pips.

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