EUR/USD: a light at the end of the tunnel in the EC's winter projections

The Euro/Dollar remained calm yesterday after the publication of the European Commission's economic forecasts. An exercise to which the Institution headed by Ursula von der Leyen, who sees a "difficult winter, but the light at the end of the tunnel", lends itself four times a year.

According to the Commission's projections, "overall, GDP is now expected to increase by 3.6% this year and 4.0% next year in the EU, and by 3.9% in both years in the euro zone. The EU economy would reach pre-crisis output levels earlier than expected in the latest (so-called autumn) forecast, largely due to stronger momentum in the second half of 2021 and 2022. However, the speed of recovery will vary considerably across the EU. Some countries have suffered more during the pandemic than others, while others are more dependent on sectors such as tourism, which are likely to remain weak for some time. As a result, while some Member States are expected to see their economic output return to pre-pandemic levels by the end of this year or early next year, others are expected to take longer". While naturally specifying that "these projections are subject to significant uncertainties and high risks, mainly related to the evolution of the virus situation and the success of the vaccination campaigns".

For the time being, the entire family of so-called at-risk assets was putting up resistance, supported by the slower rate of progression of the virus on both sides of the Atlantic. There are, however, notable differences within the Eurozone. The level formed by the curve of new contaminations remains moderate in France. On the other hand, "in Germany, with a number of new cases that has fallen significantly in recent weeks, the meeting between Angela Merkel and the heads of the Lander will provide more visibility on the health strategy for the coming weeks and on a possible timetable for easing restrictions, which is being discussed from the beginning of March", according to research by CIC Market Solutions. "Nevertheless, we believe that this will remain very gradual, in the absence of mass vaccination".

In terms of statistics, operators were relieved by the publication of the consumer price index for the month of January (+0.3% in the broadest base), perfectly in line with the target. This absence of measurable inflationary pressure - even though the "theme" is back in the trading rooms - reassured investors who feared that a surge in inflation would lead the Federal Reserve to tighten monetary policy. This was just before a speech on Wednesday by Fed chairman J Powell to the Economic Club of New York, who called for a massive mobilisation for jobs.

As of right now, the pair is trading at $1.2125.

KEY CHARTS
A rebalancing of forces in the very short term is taking place in the Euro Dollar currency pair, whose profile remains bearish below the 20-day moving average (in dark blue). The testing of this short term trend line is ongoing. Forex traders should avoid taking immediate positions until a more interesting chart entry point is found. A doji star plot materialised this temporary indecision. Neutral opinion for now...

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

We will maintain this neutral view as long as Euro Dollar (EURUSD) rates are positioned between support at $1.2070 and resistance at $1.2210.