EUR/USD: -25, or -50 basis points, Ms. Lagarde?

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The consolidation is coming to an end on the Euro/Dollar currency pair in the immediate vicinity of $1.0550 per euro, as the end of the last Governing Council of the year for the ECB approaches. “For this last meeting of the year, the monetary institution headed by Christine Lagarde should announce at least a 25 basis point reduction in its key rates. But the door is open for an additional effort, as some suggest statements from members of the ECB, like François Villeroy de Galhau, the governor of the Banque de France”, for Maxime Mura, Rates and IG Credit Manager of Swiss Life Asset Managers France.

“It is still good to remember that just after the publication of the latest (and bad) PMI activity indices for the euro zone, the probabilities for a 50 basis point cut by the ECB in December had risen to more than …65%!”, recalls Alexandre Baradez (IG France). “But since then this probability has declined due in particular to moderate statements from members of the ECB, including Isabel Schnabel, indicating that central bank measures do not resolve structural problems. “I would warn against too much development, that is to say towards an accommodating territory. I do not think that this is appropriate in the current perspective” she declared a few days ago in an interview with our Bloomberg colleagues.

The economist, member of the ECB Executive Board, also indicated that such a decision (-50 bps) would deprive the bow of a precious arrow in the event of an unforeseen shock.

Next meeting: at 2:15 p.m. for the monetary policy decision itself and at 2:45 p.m. for the press conference. At 2:30 p.m. the producer price indices in the United States will be revealed, one of the barometers for assessing inflation, which complements yesterday’s publication of consumer price indices perfectly in line with expectations.

In particular, concerning the largest basket of products, prices increased by 2.7% in November at an annual rate. Enough to further confirm the probabilities of around 80%, according to the CME Group’s FedWatch tool, of a drop of 25 basis points in the remuneration of Fed Funds at the end of the last FOMC of the year, on December 18.

At midday on the foreign exchange market, the Euro was trading against $1.0510 approximately.

KEY GRAPHIC ELEMENTS

The wedge formed since November 22 is coming to an end, and the energy contained is now compressed. An exit from the bottom, consistent with the entry from the top in the second part of November in a volatile environment, is anticipated.

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 1.0500 USD. The price target for our bearish scenario is at 1.0101 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0661 USD.

The expected profitability of this Forex strategy is 399 pips and the risk of loss is 161 pips.

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