EUR/USD: Happy end of year Fed!

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The Euro/Dollar currency pair remained in a wait-and-see position below the $1.0550 threshold, as the end of the Fed’s last monetary policy meeting of the year approached this evening. Barring any major surprises, the American central bank should lower its main directors by 25 basis points. However, the meeting is not lacking in interest, since the Fed will have the opportunity to publish and comment on the update of its economic projections.

“But, while the cycle of rate cuts began only a few months ago, it could already be paused at the beginning of 2025. Why?” asks Alexandre Baradez (IG France). “Because the main price indexes in the United States have not made further progress towards the objective for several months and the American economy continues to display insolent health. The Atlanta Fed which regularly updates its forecast for American growth during the quarter, based on data published each day, estimates that it will be…3.3% in the fourth quarter (and it has continued to revise this forecast upwards since November).”

The publication of PCE prices, the Fed’s preferred measure in its assessment of price dynamics, on Friday, will constitute the highlight of the week.

“Finally, even if the Fed still does not know the details of Donald Trump’s future economic policy, it has some clues if it refers to the previous mandate and the statements of the new president in recent weeks. Which could favor, here too , a form of procrastination by the Federal Reserve in the coming months,” continued M Baradez.

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.

Thomas Giudici, head of bond management at Auris Gestion, returned to the lessons of the ECB Governing Council, which was held last week:

“Less inflation and little growth: the mass is said. The ECB therefore opts for a more dovish turn by stating that a restrictive monetary policy is no longer necessary (ie the following key sentence was thus removed from the final press release : “the Governing Council will keep key rates at a sufficiently restrictive level, for as long as necessary, to achieve this objective”). Concretely, this means that the ECB will bring its key rates towards the neutral rate, estimated on average at). 2% After having already lowered the deposit rate four times by 25 bps since June (including last week’s meeting) to bring it to 3%, the ECB should therefore continue at this pace at least until next June. (four meetings between now).”

Yesterday currency traders also dealt with monthly retail sales across the Atlantic, which increased by 0.7% over one month, against an increase of 0.5% anticipated by the consensus. These figures should not call into question a rate cut which should be decided at the end of the meeting of the American Federal Reserve. The outcome is scheduled this evening at 8:00 p.m. (Paris time) for the monetary policy decision and for economic projections, and at 8:30 p.m. for the press conference.

Published this morning at 11:00 a.m., the final data on consumer prices in the Euro Zone (excluding volatile elements) were confirmed at +2.7% on an annual basis. To follow at 2:30 p.m. housing starts and building permits across the Atlantic.

At midday on the foreign exchange market, the Euro was trading against $1.0490 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 parity.

Our entry point is at $1.0493. The price target for our bearish scenario is $1.0101. To preserve the invested capital, we advise you to position a protective stop at $1.0661.

The expected profitability of this Forex strategy is 392 pips and the risk of loss is 168 pips.

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