EUR/USD: the Fed's economic forecast is highly awaited

After the ECB last week, it's 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 by the now definitive validation of the $1.9 billion stimulus plan, i.e. the high bracket desired by Joe Biden.

The FOMC will end today, 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 indicate to the markets that it would not tolerate a too rapid and too strong rise in rates and that it has all the necessary tools at its disposal to counter these developments, thus remaining faithful to its line of conduct, according to which there is less risk in doing more than in doing less."

A meeting considered "crucial" by Goldman Sachs analysts: "the first opportunity for the Fed to reveal how much it will tolerate overheating inflation, which it seems to be trying to generate. The Summary of Economic Projections (i.e. Growth/Inflation/Unemployment forecasts) will be dissected, and put alongside the traditional 'dot plot', which shows what the Fed members expect the rate levels to be in the years 2021 through 2023."

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 lock and key until the Easter weekend. The cascade of suspensions, notably in Germany, France and Portugal, of the vaccine from the Swedish-British firm AstraZeneca, are not likely to reassure, even if at this stage its effectiveness is not at all in question.

In addition, a series of regional electoral defeats for the CDU in Germany this weekend has weakened the current coalition.

In the meantime, the single currency is holding up well with the release of Germany's ZEW economic confidence index, up significantly to 76.7. "Economic optimism continues to rise. Experts expect a broad-based recovery in the German economy. They expect that at least 69% of the German population will be offered a virus vaccine by September. However, a large majority also expects inflation to continue to rise, as well as higher long-term interest rates," comments Professor Achim Wambach, President of the ZEW (Zentrum für Europäische Wirtschaftsforschung)

Right now, the pair is trading at $1.1910.

KEY CHART ELEMENTS
The test of the 100-day moving average (in orange) on the EUR/USD currency pair ended in a breakout on 3 March 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/USD is negative.

Our entry point is $1.1943. The price target of our bearish scenario is $1.1746. In order to preserve the capital invested, we advise you to position a protective stop at $1.2001.

The expected return on this forex strategy is 197 pips and the risk of loss is 58 pips.