EUR/USD: FOMC and Board of Governors, presentation of the issues

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The Euro/Dollar was stalling as the outcome of a new Fed Monetary Policy Committee approached this Wednesday. If a further reduction of 25 basis points in the main federal key rate is almost certain, the stakes lie elsewhere: measure the extent to which the Federal Reserve is in line with aggressive market expectations for monetary easing.

“Despite the absence of government data due to the paralysis of state services, we anticipate a rate cut of 25 basis points by the FOMC this week,” say Xiao Cui, Senior US Economist and Nadia Gharbi, Senior Economist at Pictet Wealth Management.

“This decision was widely anticipated and already priced in by the market. In the absence of new economic forecasts and rate projections, the market will focus on indications regarding the path of monetary policy and the end of balance sheet reduction. Chairman Jerome Powell recently indicated that the outlook for employment and inflation has changed little since the September meeting, while risks to employment have increased.

For its part, the ECB concludes a meeting of its Governing Council tomorrow. A status quo on the “rent” of the Euro is widely anticipated by currency traders, who will not fail to pay attention to Christine Lagarde’s comments on the two main economic powers of the Euro Zone:

“Germany is still suffering its industrial crisis and in particular its poor strategic choices in the automobile sector. France is suffering from an endless political crisis which penalizes the morale of economic agents and which slows down growth”, notes Emmanuel Auboyneau, associate manager at Amplegest, who continues:

“The Central Bank has recently shown a reluctance that it had abandoned until its last rate cut. Christine Lagarde undoubtedly believes that the work has largely been done with all the rate cuts for more than a year and that we must now wait to see their diffusion in the economy. She should, however, keep the door open to additional action in the coming months, especially since the American Federal Reserve seems to be heading for a cycle of rate cuts.”

On the macroeconomic level, the IFO business climate index in Germany rose slightly on Monday to 88.4, narrowly beating expectations. It is the “expectations for the coming months” component which contributes the most to this encouraging score, contributing to the relative good performance of the single currency. Yesterday, the “Conference Board” of American household confidence came out above expectations, at 94.6 points.

At midday on the foreign exchange market, the Euro was trading against $1.1640 approximately.

KEY GRAPHIC ELEMENTS

The bullish oblique that prevailed until now (in black on the chart) is now broken, with pullback confirmation. The negative view is offered under this oblique, while the relative strength index collapses. The 20-day moving average (in dark blue) has just broken the trajectory of its 50-day counterpart (in orange) at a significant angle. The gap between these two technical benchmarks is increasing.

MEDIUM TERM FORECAST

Considering the key graphical factors that we have mentioned, our opinion is negative in the medium term on the Euro Dollar (EURUSD).

Our entry point is at 1.1640 USD. The price target for our bearish scenario is at 1.1013 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1761 USD.

The expected profitability of this Forex strategy is 627 pips and the risk of loss is 121 pips.

DAILY DATA CHART