EUR/USD: a busy week ahead for traders in terms of news

The euro made a pause at midday today, digesting a rich week on the monetary front, nervous on the 10-year US government bond yields front.

As a reminder, the ECB left the cost of money untouched - that was a given - and revised its economic outlook. In particular, on inflation, it sees prices rising by around 2% over the next 3 years. By showing optimism on the economic front, while ensuring its support over time, the Fed has succeeded its perilous balancing act.

For the moment, according to analysts at Financière Arbevel, "the Federal Reserve has chosen to walk hand in hand with the Treasury at a time when it needs it most. Although Jerome Powell remains vague about his comfort zone on inflation, it's probably to give himself room to act in case of a fever. The experts at the management company see this as a Fed that is resolutely on the offensive and sees the current rate hike as merely a reflection of a normalisation of US growth."

In addition, on Friday, the Fed announced the lifting of an exemption on bank capital reserves that helped banks lend at the height of the health crisis. "This measure shows a greater confidence of the central bank in the recovery of economic activity," according to analysts at Aurel BCG.

As for the euro, it remains under pressure with the difficulties of deploying the vaccine campaign, and the containment in particular in Italy and in two economically major regions of France.

Although the statistical calendar is rather quiet today, the rest of the week will be busy, rich and dense in major landmarks that can cause shifts in the currency pair. These include speeches by various senior Fed members tomorrow, IHS Markit PMI activity indicators on Wednesday, final US Q4 2020 GDP data on Thursday, German IFO index on Friday, among others.

Right now, the EUR/USD pair is trading at $1.1918. The 10-year Treasuries were down slightly at 1.68%.

KEY CHART ELEMENTS
The decline of the euro against the dollar is still organized graphically within a broad bearish channel, on which the support at the lower bound was clear on 8 March. Since then, the protest reaction has been building within a wedge pattern, which we have represented in a wider dotted line on the chart below. Once the oscillations compress at the top of this wedge, a release of selling energy can be anticipated. For the time being the entry point is not considered sufficiently attractive.

MEDIUM TERM FORECAST
Given the key chart factors we have mentioned, our medium-term view on the pair remains neutral.

We will maintain this neutral view as long as the EUR/USD is positioned between support at $1.1875 and resistance at $1.1964.