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#1 25-01-2021 20:32:27

johnedward
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From: Paris - France
Registered: 21-12-2009
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EUR/USD: all eyes are now on the Tues/Wed FOMC meeting

EUR/USD: attention is now on the Tues/Wed FOMC meeting


The worrying health situation on both sides of the Atlantic imposes a status quo on the major Central Banks. Status quo widely integrated and expected, but comments or inflections in the language used are dissected.

The ECB ended its new Governing Council on Thursday and unsurprisingly reaffirmed its support for the economy, without touching its rates.

"As it stands, the ECB's monetary policy therefore seems appropriate, which will keep sovereign rates low and largely contain upward pressure from the United States," says CIC Market Solutions. "In doing so, it will also limit the appreciation of the euro. In addition, the tools implemented to ensure the liquidity of the banking sector are more than necessary in a context where credit conditions in the euro zone continue to deteriorate overall, particularly for companies. This is particularly true in France and Italy".

John Plassard (Mirabaud) notes that "Christine Lagarde's press conference was once again without great surprise and "sewn with white thread. Just as when she was head of the IMF, she once again called on member states to speed up the ratification process of their stimulus and support plans to deploy funds for productive public spending and structural policies to boost production. The markets reacted very little to this "uneventful" meeting. Eyes are now focused on Wednesday's Fed meeting".

A monetary status quo is also expected this week, but the outcome of the Monetary Policy Committee (FOMC) meeting will be scrutinised to assess the Fed's views on the immunisation campaign and the new stimulus package desired by Biden. Verdict on Wednesday.

Franck Dixmier (Allianz) says that "the Fed could begin to communicate on a slowdown in its asset purchases at the end of the year, if the economic rebound materialises in the second half of the year and if the vaccination campaign allows a recovery in consumption. The sequencing of the Fed's exit policy has already been specified: the Fed will first slow down its buybacks, then stop them. Only then will it be able to consider a rise in interest rates, which is not anticipated before 2023".

On the statistical front, attention was focused on Friday on the publication of the PMIs with the very first estimates for this month. No unpleasant surprises to be noted, in the sense of deviations from the consensus in any case, with in particular, for the Eurozone as a whole, an industrial PMI at 54.6, in line with expectations, and a services PMI at 44.9, very slightly above the target. Chris Williams, Chief Economist at IHS Markit, says: "A double-dip recession now seems inevitable for the Eurozone economy, as tougher measures to contain the spread of the virus continue to weigh on business performance".

Looking ahead, forex traders have taken note of the IFO Business Climate Index for Germany, which this month has contracted to 89.9, missing the median expectations by 1.4 points.

As of right now, the pair is trading at around $1.2107.

KEY CHART ELEMENTS
The now validated break in the 20-day moving average (in dark blue) changes the technical framework that prevailed until then. After more than two months of uninterrupted firm growth, the time is ripe for a downturn under the aforementioned short-term trend curve, which has now sharply reduced its downward slope. Last weekend, we specified two technically identifiable support points that will arise if the $1,2115 and $1,2000 levels continue to fall. The first of these has been erased on a bout of volatility, which leads us to anticipate a break in the second (still in progress), and therefore to readjust the target, aiming for a broader bearish objective. Negative opinion as long as the spot is below its 20-day moving average (in dark blue). Trend curve which offers the advantage, in this case, of identifying a clear trailing stop. The EUR/USD currency pair just completes the trailing stop of a slightly engaging wedge at the contact of this trend line.

MEDIUM TERM FORECAST
In view of the key chart factors we have mentioned, our opinion is negative over the medium term on the Euro Dollar (EUR/USD) exchange rate.

Our entry point is $1.2156. Our target price for our bearish scenario is $1.1876. To preserve the capital employed, we advise you to position a protective stop at $1.2211.

The expected return on this strategy is 280 pips and the risk of loss is 55 pips.

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