EUR/USD: Powell knocks out the Euro/Dollar

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The Dollar has particularly strengthened against the Euro, so the Euro/Dollar fell sharply yesterday, following the outcome of the last FOMC of the year, which had a rather firm tone. If the powerful monetary institution has, unsurprisingly, lowered the remuneration of its Fed Funds by 25 basis points, it has adopted a rather offensive tone, particularly due to the still chronic tensions on the job market.

Like every quarter, the Fed published a document eagerly awaited by the markets: the famous dot plots. This dot plot shows that Fed members’ median expectation for 2025 incorporates only 50 basis points (0.5 percentage points) of policy rate cuts. However, in previous dot plots, in September, members anticipated a rate cut of 100 basis points over 2025.

In this context, tomorrow’s publication of the PCE prices, the statistical highlight of the week, will be crucial. As a reminder, this is the Fed’s preferred measure in its assessment of price dynamics.

“At the press conference, Chairman Powell said it was a difficult decision to make and mentioned that inflation seemed to be stagnating,” said Christian Scherrmann, Chief US Economist at DWS. “This could well indicate that a further halt in the disinflation process could lead the Fed to keep rates unchanged. Separately, Powell cited political uncertainties as a reason why some central bankers are less confident in continued moderation price increases.”

On the macroeconomic agenda this Thursday, to follow as a priority across the Atlantic the final GDP data, weekly registrations for unemployment benefits and the Philly Fed, at 2:30 p.m.

At midday on the foreign exchange market, the Euro was trading against $1.0400 approximately.

KEY GRAPHIC ELEMENTS

The tightening of the Bollinger bands gave way to an increase in volatility, consolidating or even strengthening the $1,050-50 in their role of major resistance. Below the 20-day moving average (dark blue), the view remains negative on the flagship currency pair.

MEDIUM TERM FORECAST

Considering the key graphical factors that we have mentioned, our opinion is negative in the medium term on the EE (E) parity.

Our entry point is at 1.0397 E. The price target for our bearish scenario is at 1.0001 E. To preserve the invested capital, we advise you to position a protective stop at 1.0496 E.

The expected profitability of this Forex strategy is 396 pips and the risk of loss is 99 pips.

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