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#1 31-08-2020 17:09:17

johnedward
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From: Paris - France
Registered: 21-12-2009
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EUR/USD: zero support for the greenback

EUR/USD: zero support for the greenback


On Thursday, the euro held significantly above $1.1745/$1.1750, a level that is the lower bound of a consolidation figure, which is dangerously turning into a bearish reversal figure (see below).

For the time being, the euro's momentum against the USD is proving resilient, in the wake of the new US monetary policy guidelines.

J. Powell gave an outline of the Fed's strategic inflection for the coming years last week. He formalised a major inflection of the institution's policy by saying that it would be guided primarily by the level of employment, even if it means allowing "moderate" inflation to go beyond its target of 1.9% annual price increases. Schematically, this threshold no longer becomes an upper limit but an objective to be reached on average over time, which means that the Federal Reserve will tolerate a higher level if necessary for a certain period of time, after a phase of excessively low inflation. The message sent is one of assured monetary support over time.

"Jerome Powell has only made official the ultra-accommodating turn taken by the US Central Bank since the beginning of the Covid-19 crisis," commented Eric Bourguignon of Swiss Life Asset Mgmt. "By removing the inflationary risk from his concerns, he implicitly acknowledged that the Fed's key rates would be kept permanently low," continued Bourguignon.

Emmanuel Auboneau, a Partner at Amplegest, adds: "The meeting last week allows Jerome Powell to clarify his monetary policy for the coming year. The current focus is on employment, not inflation. The FED could allow inflation to exceed its target from time to time because it is now only aiming for 1.9% inflation on average and over time. This announcement augurs a long period without rate hikes. It is therefore an important speech insofar as it sets a clear course for at least the next few years. Everything for growth, inflation becomes a secondary variable."

This is to be followed today by a battery of indicators of industrial activity in Europe (PMI).

As of now, the pair is trading at $1.1918.

KEY CHART ELEMENTS

As we mentioned above, the initially identified consolidation figure, formed since the end of July - first in a rectangle, then in a diamond (figure more ambiguous as to the direction of exit) - is gradually becoming a bearish chart pattern, which remains to be confirmed by the formation of several "shoulders". In any case, a break of the $1.1745/$1.1750 zone with confirmation by an acceleration of volatility would blur the cards.

MEDIUM-TERM FORECAST

With regard to the key above chart factors, our opinion is neutral in the medium term on the pair.

We will maintain this neutral opinion as long as the EUR/USD is positioned between support at $1.1749 and the resistance at $1.200.

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