EUR/USD: This will be a busy week for traders...
Forces were balanced on the EUR/USD, with the single currency retaining aficionados amid persistent appetite for risk and the note retaining a clear advantage as the Fed appears unwilling to lower its key rates to very short term. The latest statistics, on growth, employment and especially prices, argue in this direction.
Remember that prices therefore increased at a monthly rate of 0.4% in January, compared to 0.2% in December.
"The level of 2% to be reached is complicated and uncertain" for Emmanuel Auboyneau, Amplegest partner. "In addition to a possible rise in raw materials boosted by economic growth, it is above all wages which are the key variable. After a lull of several months, they have recently resumed the upward trend, which is consistent with the strength of the job market. Furthermore, rents which constitute 30% of the price index have stabilized but remain subject to the structural shortage of housing in the United States."
The CME's FedWatch tool puts the probability of a rate cut on May 1 at the end of the FOMC at 25.9%.
M Auboyneau remains convinced "that 2024 will be the year when the rate cut begins, but in a moderate way and only from the second half of the year."
"After a period of calm, central banks are back,? says Christopher Dembik, investment strategy advisor at Pictet AM."
"Given the pronounced deterioration of the economic situation in the euro zone, logic would dictate that the European Central Bank (ECB) quickly lower its rates in order to support the parts of the economy most in difficulty, such as real estate. But this will not happen. The ECB will certainly wait wisely for the American Federal Reserve (Fed) to begin the cycle of monetary easing in order to do the same. In short, a new monetary policy error to be attributed to the ECB. This is not the first. In the midst of the global financial crisis, the ECB led by Jean-Claude Trichet had increased its key rate because of possible pressure on prices linked to oil. Great mistake. It was then necessary to lower the rates more than designed to help States and banks in difficulty. It is said that you never learn from your mistakes..."
Published on Friday, inflation in the euro zone slowed in February but a little less than expected. It rose to 2.5% over one year compared to 2.8% in January. But the consensus established by Reuters was 2.4%.
Forex traders will have a busy second part of the week in terms of the calendar with hearings from J Powell before parliamentarians on Wednesday and Thursday, the outcome of the ECB Governing Council on Thursday, and numerous benchmarks on American employment, before the statistical highlight on Friday with the NFP (Non Farm Payrolls) report, a federal report on the health of American private employment. Operators will not be monitoring the health of employment, which is undoubtedly very good, but the persistence of tensions, particularly wage tensions, which contribute to the resistance of the inflationary phenomenon that the Fed has been trying to contain for months.
In the immediate future, the Sentix investor confidence index in the Euro Zone has just risen slightly although in negative territory, at -10.4. The institute provides the following commentary on the leading economic power in the Eurozone: ""The German economy is increasingly turning into a "ghost train". Given the improvement in global data, it is becoming increasingly increasingly obvious that it is Germany's atypical, unfortunately ineffective, economic policy that is preventing a complete economic recovery in the heart of Europe. The recession remains ongoing and the data even continues to deteriorate. The situation is as fragile as it was in July 2020 in the middle of the Covid crisis."
Right now, the EUR/USD is trading at $1.0854.
KEY CHART ELEMENTS
The 20-day moving average (in dark blue), which until now conveniently served us as a trailing stop, has been clearly exceeded. We therefore no longer offer short positions, and remain on the lookout for a new attractive entry point. If the spot were to break its 20-day moving average in a significant level of volatility, we could then speak of a false exit since February 20. This dynamic level is to be monitored, therefore.
MEDIUM TERM FORECAST
Considering the key graphical factors that we have mentioned, our opinion is neutral in the medium term on the EUR/USD.
We will maintain this neutral opinion as long as EUR/USD prices are positioned between support at $1.0810 and resistance at $1.0940.
