EUR/USD: a downward tunnel is appearing

The European Central Bank concluded a new meeting of its Governing Council on Thursday. The widely anticipated monetary standstill took place, with the Central Bank content to play up the pace of asset purchases (PEPP). "The need to keep financial conditions accommodative is immediate to allow the recovery scenario to take hold as rates will rise anyway in a few months as inflation expectations take hold," for analysts at Financiere Arbevel. "The ECB is trying to play down the underlying factors for the inflation recovery by talking a lot about technical and one-off factors. No doubt a move to defuse the risks of a rate hike."

In the end, "Thursday's meeting of the European Central Bank (ECB) had only one aim: to reassure", for John Plassard (Mirabaud). "It is a good thing that we have to be careful about what we say," says John Plassard (Mirabaud). "The latter has in fact had a "monopoly" on pressure when it comes to sovereign bond yield increases for several weeks."

For if the signs of inflation are not yet palpable - it is an inflationary sentiment at this stage - a fringe of economists considers that the inflationary risk directly attributable to the "Biden plan" is important. After final negotiations, this new fiscal stimulus package was formally adopted last week. With a budget of $1.9 trillion, which is the high end desired by the new president, the plan includes a very important "parachute money" component, i.e. a system of sending checks directly to households earning less than $74,000 a year. However, the President did not succeed in passing his wish to raise the minimum hourly wage to $14.99.

On Thursday's statistical front, traders, relieved after the release of US consumer prices earlier in the week, with no particular warm-up for the month of February, took note of weekly jobless claims, at 713,000 new claims for the past week, down 41,000 according to the US Department of Labor. The 4-week moving average was 760,000, down 35,000 from the previous week's revised average.

Last Friday morning, currency traders took note of a higher than expected increase in industrial production in the Eurozone: +0.79% in monthly terms for the month of January, according to EuroStat. Note that the only German component is slightly in negative territory.

At midday on the foreign exchange market, the Euro was trading at around $1.1931.

KEY CHART ELEMENTS
The test of the 100-day moving average (orange) on the Euro/Dollar currency pair ended in a breakout on Thursday, March 4, and the euro is now experiencing levels against the dollar that have not been seen since November. A continuation of the clearing is considered. The formation of a large consolidation triangle between the aforementioned underlying trend line and the black dotted oblique is currently resulting in a downward exit. From now on, it is the validation of a descending channel (in black and dotted lines) that is underway.

MEDIUM-TERM FORECAST
Given the key chart factors we have mentioned, our medium-term view on the Euro Dollar (EUR/USD) is negative.

Our entry point is $1.1920. Our bearish scenario price target is $1.1746. In order to preserve the capital invested, we advise you to place a protective stop at $1.2001.

The expected return on this strategy is 174 pips and the risk of loss is 81 pips.