EUR/USD: high expectations for the Governor Council and for the US budgetary debates

On firm levels, forces continued to balance out on the pair as confidence grew in a positive outcome on two major issues on both sides of the Atlantic, namely the confirmation of a strong message from Christine Lagarde today at the end of the ECB Governing Council meeting and an agreement in the US Congress on the stimulus package budget increase to fight the economic and social effects of the virus situation.

On the first point, analysts have gradually federated around the idea raised a few days ago now, by UBS in its first morning note of December of a €500 billion increase in support from the ECB.

UBS said it expected the EPPP (Emergency Pandemic Procurement Program) to be extended for a few months and increased by 500 billion euros, from 1,350 billion euros to 1,850 billion euros. According to the Swiss bank, the TLTRO (Targeted Longer-Term Refinancing Operations) would be extended until mid-2022. Verdict later today to see to what extent UBS's expectations will be confirmed, and to what extent more generally the European Central Bank has the possibility to still pleasantly surprise the market in its dovish (conciliatory, accommodating) attitude.

Franck Dixmier (Global CIO Fixed Income of Allianz Global Investors) agrees. "The message is clear: the ECB intends to commit itself even more to support the economy, and to continue the PEPP (Pandemic Emergency Purchase Programme) as long as the virus situation lasts".

"By presenting a very clear roadmap, the ECB offers investors a high degree of visibility, by anchoring short rates ever more firmly at low levels and by influencing the entire curve. The new measures are already being taken up by the markets, as shown by the compression of credit spreads and the periphery," continues Mr. Dixmier.

On the U.S. fiscal front, Trump has proposed a $915 billion package to Democrats. A step forward, even if the road between the two camps is still long. Democrats and Republicans are not yet ready to come together, especially on the issue of unemployment insurance.

"The stakes are also very high for local governments, whose deficits are increasing (lack of funding and high expenses) and financial conditions are likely to deteriorate, which moreover led the rating agency Fitch to lower the rating of New York City bonds yesterday," according to CIC research.

On the health front, investors have nothing to be happy about either. While in the medium term, the prospects for vaccines - the United Kingdom began administering Pfizer/BioNTech's vaccine to the most vulnerable people on Tuesday morning - make it possible to consider lifting restrictions, the pace of new infections is no longer declining as rapidly in Europe. This makes it difficult to move to new stages of deconfinement before the end of the year in both France and Germany. Meanwhile, California has reimposed restrictions, while the governor of New York is threatening to ban indoor catering in the city if the number of hospitalisations continues to rise.

As of right now, the pair is trading at $1.2111.

KEY CHART ELEMENTS

The $1,200 that we identified as intermediate resistance shattered on Tuesday, on a remarkable candle marking an uninterrupted mobilisation of the buying camp. While the 100-day moving average (in orange) provides firm support, and the 20-day moving average (in dark blue) accentuates its slope, buying signals remain distinctly positive on the spot. A breathing phase is nevertheless underway, with the opportunity to define a more interesting entry point to come.

MEDIUM-TERM FORECAST

With regard to the key chart factors we have mentioned, our opinion is neutral in the medium term on the EUR/USD's exchange rate.

We will maintain this neutral opinion as long as the Euro Dollar (EURUSD) is positioned between support at $1.2000 and the resistance at $1.2155.