EUR/USD: a small consolidation flag has formed

The forex is entering a complex equation: that of anticipating the inflation differential on both sides of the Atlantic in the months to come. In the United States, several elements supporting the idea of a V-shaped recovery, even causing an early imbalance between supply and demand on the labour market, argue for a return of inflationary pressures, the latter remaining at the stage of the spectrum.

In terms of statistics on Tuesday, investors took note of the German ZEW confidence index for the Eurozone's largest economy, which rose sharply to 84.5, the highest in more than 2 decades. "The slowdown in the third virus wave has made financial market experts even more optimistic. The ZEW economic sentiment indicator in the May survey reached its highest level in over 2 decades. The assessment of the economic situation has also improved significantly. Experts expect a significant economic recovery in the next few months. The economic outlook for the eurozone and the US has also improved considerably," says ZEW President Professor Achim Wambach on current expectations.

In the meantime, currency traders were informed of a marked, and by consensus disappointing, slowdown in industrial production momentum in the currency union. Eurostat puts the monthly increase in industrial production at +0.1% (March to February).

The yield on US government bonds (10-year Treasuries) remained close to 1.61%, with no further signs of heating up.

Right now, the EUR/USD is trading at $1.2091.

KEY CHART ELEMENTS
The crossing of the upper bound of a former bearish channel is now fully validated, by the increase in volatility in particular on 23 April, and by the consecutive crossing, in the wake, without any form of hesitation, of the 100-day moving average (in orange). The black marubozu drawn on 30 April was followed by the white marubozu of equivalent magnitude, testifying to the very short-term nervousness of the currency pair. The formation of a small consolidation flag is the preferred option.

MEDIUM TERM FORECAST
Based on the key chart factors we have mentioned, our medium-term view on the EUR/USD is neutral.

We will maintain this neutral view as long as the EUR/USD is positioned between support at $1.2100 and resistance at $1.2210.