EUR/USD: Trump complicates the Fed equation

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The Pair of Euro / Dollar currencies continues its movement of lateral consolidation near the $ 1.09, the traders composing with a trade war which gains in intensity, and a geopolitical context to say the least.

Regarding the Ukrainine file, American president Donald Trump explained to the journalists present in Air Force One that “a lot of work was done during the weekend”, while a 30-day truce plan was proposed and validated by the Americans and the Ukrainians. He also spoke of “sharing of certain assets”, evoking “lands” and “electric factories”. The Russians are demanding “concrete security guarantees” to carry out this truce.

The consolidation of the euro remains solid, supported by the prospect, now solid, to see Germany break the rule of budget. The future chancellor Friedrich Merz has reached an agreement with the Greens which should allow the mega investment plan (around 900 billion euros) in defense and infrastructure to be adopted. With the support of environmental deputies, the leader of the Conservative Party is strong by a majority of two thirds necessary for constitutional changes and soften the rules of indebtedness across the Rhine. Which is a prerequisite for this plan to be implemented. The text will be submitted to a vote next Tuesday at the Bundestag, before passing through the hands of the Bundesrat.

On the other hand, the dollar remains under pressure after a series of disappointing macroeconomic statistics, especially on the front of consumer feeling and consumption itself. New disappointment with the household confidence U-Mich index on Friday, index that continues its decline, once again in expectations, at 57.9. Over a year, the index plunged by more than 27%. “Many consumers have cited the high level of uncertainty surrounding policies and other economic factors; frequent fluctuations in economic policies make consumers to plan the future, whatever their political preferences,” said the University of Michigan.

These signals, the Fed will have to deal with it, while this week brings together its monetary policy committee. A work made difficult by the expansionist, anti-immigration and aggressive policy in terms of customs of Trump.

“Recent economic data have aroused concerns among investors about the potential impact of Trump policies on the economy” notes Claudia Panseri, Chief Investment Officer at UBS WM France. “The discrepancy between Trump’s aggressive commercial position and the more pragmatic approach to the Secretary of Commerce Howard Lunick, who is sometimes followed by concessions on the part of the President, has complicated the message of the administration. This lack of cohesion creates uncertainty on the financial markets and is likely to slow down investment decisions, consequence of companies and investors who wonder if Trump policies will finally hinder economic momentum. “

It is this lack of visibility on the price and growth trajectories that complicates the equation.

Dan Scott, Multi Asset Manager, Vontobel, synthesizes the situation: “Fed members said they were in a waiting phase and that they needed more visibility on growth and inflation before reducing interest rates. Or, to use the words of the President of the Fed of Chicago, Austan Goolsbee,” there is a lot of uncertainty, a lot of uncertain Fed can start lowering the rates, I think and I have to make a little of this dust disappear. “

The active managing decision-maker hopes “that the Fed has learned from its past errors and that it attaches more importance to disappointing labor market data than to temporary increases in inflation.”

At the macroeconomic agenda this Monday, to follow retail sales and the Empire State across the Atlantic at 1:30 p.m.

At midday on the foreign exchange market, the euro was treated against $ 1,0895 approximately.

Key graphics elements

The crossing in significant volatility of $ 1,0608 changes the situation on the configuration of the currency pair, which has just validated a resumption of support on a long mobile average, at 50 days (in orange), which begins a resource figure. The scenario of a fast melting towards the perfect parity (€ 1 = $ 1) is invalidated.

Medium term

In view of the key graphic factors that we have mentioned, our opinion is neutral in the medium term on Euro dollar parity (Eurusd).

We will keep this neutral opinion as long as the EURO Dollar parity prices (EURUSD) are positioned between the support at 1,0758 USD and the resistance to USD 1,1012.

Daily data graphics