EUR/USD: a downward bias in the short term

The euro remains graphically in a weighed down situation against the dollar, while the comparison of the health situation, in its overall acceptance, between the two sides of the Atlantic, turns to the disadvantage of Europe. On the virus and vaccine fronts, although the situation is easing in America - the government is now aiming to get 200 million people vaccined in three months, double the initial target reached on Friday - it is a different story on this side of the Atlantic, with several economic hubs locked down in Italy, the Paris region, and northern France, among others, and concerns rekindled in Germany, where Angela Merkel wants to tighten up the restriction conditions for Easter. The Chancellor speaks of a "new pandemic", due to the contamination by the British variant.

After the approval of the $1.9 trillion stimulus package, which represents a first political victory for J Biden, traders are watching more than ever the "temperature" of 10 year government bond yields (Treasuries), down to 1.640%. The traders' magnifying glass will now turn to another of Biden's campaign promises, namely the massive infrastructure plan.

No major macroeconomic figures were on the agenda Monday, at the beginning of a week that is nevertheless dense on this point with, in particular, a battery of activity indicators and the final Q4 2020 GDP data for the US, as well as the German IFO.

As of right now, the pair is trading at $1.1881.

KEY CHART ELEMENTS
The decline of the euro against the dollar is still organised 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 plotted 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 EUR/USD pair is 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.