EUR/USD: Imminent increase in volatility

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As tomorrow’s end of the Fed’s last “FOMC” in 2024 approaches, the EURUSD currency pair retained its basic bearish bias, at the heart of a zone formed by tightening Bollinger bands, leaving augur an imminent increase in volatility.

The CME Group’s FedWatch tool puts the probability of seeing the Fed validating this 25 basis point easing of the dollar’s rent at an overwhelming 97.1%. “There should be no major surprises from the Fed. A cut of 25 basis points (0.25 percentage points) is expected by 94% of market participants. However, the big unknown concerns the speed of the rate cut next year,” explains William Gerlach of iBanfirst.

In terms of statistics this morning, two important German indicators to note: firstly, the IFO index, measuring investor confidence in the Euro Zone’s leading economy, came out slightly below expectations, at 84.7. “The weakness of the German economy has become chronic” can be read in a comment as cold as it is laconic accompanying the results of the survey.

The ZEW index then, a so-called economic sentiment index, came out above particularly pessimistic expectations, at 15.7 points. “With early elections looming in Germany and the resulting expectations of an economic policy encouraging private investment as well as the prospect of further interest rate cuts, the economic outlook is improving,” according to the president of ZEW, Achim Wambach.

Yesterday, currency traders became aware, very early in the month, of the first estimates from PMI barometers in the Euro Zone. The German industrial component, which came out below expectations at 42.5, weighs down the synthetic data for the entire monetary union. However, “if the manufacturing industry remains stuck in a sharp recession, the rebound recorded in the services sector is good news for the economy as a whole”, notes Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, who adds:

“Germany and France, the two main economies in the region, are currently in very uncertain political situations. This climate prevents the implementation, in the short term, of reforms necessary to revive growth and contributes to the persistent weakness of the two countries In the longer term, however, this strong uncertainty implies the possibility of an improvement in the situation: if the future governments of the two countries manage to draw up a road map, the year 2025 could hold some challenges. good surprises. In fact, the confidence of private sector companies in the euro zone regarding growth in their activity in the next twelve months has increased slightly compared to November.

To follow retail sales in the United States at 2:30 p.m. and the monthly federal report on the health of the industry at 3:15 p.m.

At midday on the foreign exchange market, the Euro was trading against $1.0495 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 EURUSD parity.

Our entry point is at 1.0496 E. The price target for our bearish scenario is at $1.0100. To preserve the invested capital, we advise you to position a protective stop at $1.0661.

The expected profitability of this Forex strategy is 396 pips and the risk of loss is 165 pips.

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