EUR/USD: Wednesday FOMC meeting will reveal more

After the ECB last week, it is now the Fed's turn to engage in a (somewhat delicate?) communication exercise in the context of a tremor in long-term rates. This is the return of the theme of inflationary fears in the market rooms, fears fuelled among other things by the now definitive validation of the huge stimulus plan, i.e. the high tranche desired by Joe Biden. The FOMC will end tomorrow, and concerning the attitude of J. Powell, it will be a "question of measure", for Franck Dixmier (Allianz GI). "It is very likely that the Fed will signal to the markets that it would not tolerate too much and too fast a rate hike and that it has all the tools at its disposal to counter such developments, thus staying true to its line that there is less risk in doing more than in doing less."

For its part, the ECB concluded a new meeting of its Governing Council on Thursday. "The need to maintain accommodative financial conditions is immediate to allow the recovery scenario to take hold as rates will rise in a few months anyway as inflation expectations are confirmed," say analysts at Financière 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 terms of Friday's statistics, traders took note of a higher than expected increase in industrial production in the Eurozone: +0.8% in monthly terms for the month of January, according to EuroStat. Note that the German component alone was slightly in negative territory. In the US, the producer price index rose more than expected in February (+0.5%) and the Univ. of Michigan consumer confidence index exceeded its target.

In the immediate future, the single currency remains under pressure from the deteriorating health situation, particularly in Italy. Most of the Eurozone's third largest economy is once again under lockdown until the Easter weekend. In addition, a series of regional electoral defeats for the CDU in Germany has weakened the coalition in place.

Right now, the pair is trading at $1.1930.

KEY CHART ELEMENTS
The test of the 100-day moving average (in orange) on the EUR/USD 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 the end of last November. A continuation of the clearing is possible. 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 EUR/US is negative.

Our entry point is $1.1930. The price target of our bearish scenario is $1.1746. In order to preserve the capital invested, we advise you to set a protective stop at $1.1991.

The expected return on this forex strategy is 184 pips and the risk of loss is 61 pips.