EUR/USD: Heading for PCE!

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The question that currency traders are asking themselves this Friday is clear. Will PCE prices, namely the Fed’s preferred measure in its assessment of inflation, go in the direction or not of the rather firm tone which prevailed at the end, Wednesday evening, of two days of meeting of the Monetary Policy Committee. Verdict at 2:30 p.m. Economists expect an increase of 2.9% in November over one year excluding energy and food prices. Any excess of the target would strengthen the Dollar, and therefore weigh on the Euro, especially after the sharp upward revision of American GDP in the 3rd quarter, to +3.1%.

As a reminder, this meeting of the Fed Monetary Policy Committee resulted, unsurprisingly, in a 25 basis point reduction in the remuneration of the Fed Funds.

But the powerful central bank also published an update of its economic projections, highlighting the great strength of the labor market. The Fed suggests that it could only lower rates by 50 basis points cumulatively over the whole of next year.

The Fed has therefore adopted a rather offensive tone, particularly due to the still chronic tensions on the job market. Like every quarter, it 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.

“Overall, we are comfortable in our view that the Fed will take more time to return rates to a neutral level. However, given the many political uncertainties ahead, we remain vigilant. Tariffs generally represent a one-time rise in prices that disappears from inflation rates after 12 months However, some models suggest that they could have negative effects on demand and labor markets. On the other hand, we know from experience that stimulus measures. budget and a reduction of labor supply—perhaps due to reduced migration—can actually put upward pressure on prices. It remains very unclear, at least for now, how these competing effects occur. will combine in the long term,” according to the asset management decision-maker.

At midday on the foreign exchange market, the Euro was trading against 1.0390$ approx.

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 EURUSD parity.

Our entry point is at $1.0391. The price target for our bearish scenario is at $1.0001. To preserve the invested capital, we advise you to position a protective stop at $1.0501.

The expected profitability of this Forex strategy is 390 pips and the risk of loss is 110 pips.

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