EUR/USD: a pullback on a former resistance level

The Euro/Dollar was in the process of forming a pullback on the upper bound of an ex-channel (see below), in the absence of any major macroeconomic cues since the beginning of the week.

The EUR/USD crossed the upper bound of a bearish technical corridor on Monday without hesitation, amidst a climate of acceptance and consensus that the Fed is determined to maintain ultra-accommodative conditions for a long time to come, despite enthusiastic signals on the quality of the recovery (see consumer prices and retail sales published last week). As long as full usage and the 2% inflation targets are not in sight, the powerful monetary institution led by Powell will not tighten its tone. The USD is therefore temporarily losing its appeal.

At the same time, the outcome of the ECB Governing Council meeting (today) will be particularly closely watched in this context. "In the absence of an additional stimulus plan, and due to the delay in the provision of funds from the European recovery plan, the European Central Bank is once again in the front line," notes Franck Dixmier (AllianzGI). "It is clear that the ECB will reiterate its desire to maintain the most favourable financial conditions for the euro zone. Especially as its message is working for the moment."

The programme will become denser throughout the week, culminating today with the ECB's monetary policy decision and on Friday via a battery of PMI activity indicators.

Right now, the pair is trading at $1.2007.

KEY CHART ELEMENTS
No high shadow formed on Monday, and unlike what happened on 25 February, the bearish channel is losing its validity. We will, especially in view of the increase in volatility on Monday after three days of hesitation, tip the upper bound of this ex-corridor into support. A pullback at this level is not excluded.

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

We will maintain this neutral view as long as the EURUSD is positioned between support at $1.1964 and resistance at $1.2099.