EUR/USD: Bearish bias confirmed, like the past quarter

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Market psychology remains the same on the Euro/Dollar currency pair, the greenback being favored by the offensive tone adopted by the Fed at the end of the last FOMC of the year, and the Euro being penalized by the political instability in France and Germany, and by less resilient economic health.

As a reminder, this meeting of the Fed Monetary Policy Committee ended unsurprisingly on 12/19 with 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 the moment, how these competing effects. will combine in the long term,” according to the asset management decision-maker.

It is therefore a decoupling that will take place between policies and therefore monetary trajectories on both sides of the Atlantic. “While two weeks ago, without saying a word, the ECB had undertaken a “dovish” turn during its last monetary policy meeting of the year by indicating that restrictive key rates were no longer necessary, members of the Fed seem, for their part, to follow a completely different path For those who were waiting for a Christmas gift from Jerome Powell, we will therefore have to go back…” summarized Thomas Giudici, head of bond management at Auris Gestion. .

Concerning the economic situation on the old continent: “The two main countries (Germany, France) are sinking into the political crisis, growth remains close to zero and, despite contained inflation, the European Central Bank is still showing excessive caution However, we believe that the rate cuts, even if they are too slow, will end up having a positive impact on the economy. The confidence of economic agents in Europe is very low and could recover in. case of political stabilization and favorable developments in the conflict in Ukraine”, judges Emmanuel Auboyneau, associate manager Amplegest.

To follow at 3:45 p.m. the Chicago PMI, a valuable indicator of industrial activity.

At midday on the foreign exchange market, the Euro was trading against $1.0445 approximately.

KEY GRAPHIC ELEMENTS

The post FOMC stall has given way to the formation of a wedge, between the lower limit of the Bollinger bands and the 20-day moving average (in dark blue), an increasingly valuable benchmark.

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 $1.0420. The price target for our bearish scenario is $1.0101. To preserve the invested capital, we advise you to position a protective stop at $1.0551.

The expected profitability of this Forex strategy is 319 pips and the risk of loss is 131 pips.

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