EUR/USD: Mrs. Lagarde's tricky communication declaration

A small rebound in the EUR/USD, which is still engaged in a leg of ebb, which has become more pronounced since 26 February. Forex traders consider that the quivering observed in the bond markets will continue to be major drivers. In this respect, the slightest inflections in the language used by the leaders of the major central banks on both sides of the planet are being scrutinised, as the balancing act appears delicate, between the desire to ensure low-cost credit conditions and the desire to avoid any sign of overheating.

Last week's statements by the Fed boss were deemed a little too wait-and-see, with Jerome Powell content to downplay concerns about a resurgence of inflation. "Jerome Powell's speech did not really succeed in reassuring investors" and it will take more from the US central bank in the coming days to calm the market, says John Plassard, investment director at Mirabaud. Inflationary sentiment was reinforced on Friday by the content of the US federal employment report.

This week, traders will be paying close attention to the language provided by the ECB, which is hosting a new Governing Council on Thursday.

The Frankfurt institution "will likely not take any concrete measures at this meeting", according to Franck Dixmier (Allianz GI). "On the other hand, her communication should be firm on two points:

1) The maintenance of favourable financial conditions: in a context of still fragile recovery of the economies in the euro zone, Christine Lagarde should point out the danger of too pronounced a tightening of financial conditions that could result from a rise in rates, especially if it were too rapid. The ECB should therefore reaffirm its vigilance to ensure that financing conditions remain extremely accommodating for governments, but also for companies.

2) The transmission of monetary policy: even if spreads remain tight, they will remain a point of vigilance, and the central bank should reaffirm the importance of maintaining a perfect transmission of monetary policy".

In yesterday's statistical chapter, note the disappointing figures for industrial production in Germany (-2.6% in January in pace, monthly), significantly off target. Germany's January trade balance, published this morning, saw its surplus grow much more than expected, at +22.6 billion euros. On the other hand, the revised data for the change in GDP in the Euro Zone came out at -0.6% quarter-on-quarter, compared with -0.59% for the previous estimate.

Right now, the pair is trading at $1.1914.

KEY CHARTS
The 100-day moving average test (in orange) on the EUR/USD pair ended with a break and the euro is now at levels against the dollar that had not been seen since early December. A continuation of the clearings is expected. The formation of a large consolidation triangle between the quoted underlying trend line and the black dotted line is resulting in a bottom exit.

MEDIUM-TERM FORECAST
In view of the key graphical factors we have mentioned, our opinion is negative over the medium term on the EUR/USD's exchange rate.

Our entry point is $1.1907. Our target price for our bearish scenario is $1.1621. In order to preserve the capital employed, we advise you to position a protective stop at $1.1987.

The expected return on this forex strategy is 286 pips and the risk of loss is 80 pips.