EUR/USD: Breaking $1.03

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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.

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. .

A decoupling further illustrated yesterday by the publication of the final data from the PMI barometers of activity in industry in the Euro Zone, confirmed at almost 5 points below the 50 point mark, at 45.1, which gives an idea of contraction, due in particular to German structural difficulties. “Despite the approach of the end-of-year holidays, the situation remained gloomy in the manufacturing sector of the euro zone. Unsurprisingly, the trends were downward in December. The decline in new orders was even accentuated by compared to October and November, leading in turn to an acceleration in the decline in work in progress and thus destroying any hope of an imminent resumption of activity”, coldly notes Dr. Cyrus de la Rubia, Chief Economist at the Hamburg Commercial Bank .

And also illustrated yesterday by the publication of weekly registrations for unemployment benefits, managing to surprise downwards an already very optimistic consensus.

Forex traders will learn about the rare statistic on this Friday’s program, namely the ISM manufacturing index for the month of December, at 4:00 p.m. “Since the end of 2022, this index has contracted every month except one. Today’s publication will tell us whether the modest optimism of the November index (48.4), higher than consensus, was justified or if it was simply a fluke The consensus leans in favor of the latter hypothesis (47.5 expected today)”, argue the ING economists.

“While the manufacturing sector is expected to remain in contraction, weaker than expected data could increase the likelihood of rate cuts aimed at supporting this key economic sector, potentially limiting the significant rise in the dollar,” said George Pavel of Naga. .com. For the moment, the markets are less optimistic than the specialist to the extent that the American Federal Reserve had signaled during its last monetary meeting of 2024 that it risked applying the handbrake on rate cuts next year .

At midday on the foreign exchange market, the Euro was trading against $1.0295 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. The selling energy contained within this wedge is in a classic release phase.

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 1.0292 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 1.0391 E.

The expected profitability of this Forex strategy is 291 pips and the risk of loss is 99 pips.

DAILY DATA CHART