EUR/USD: inflation is the key thing to watch for

There are topics that come and go. Traders often shift their focus to some, or abandon others or even revive very old ones. It is therefore especially important for currencies to follow the concerns of traders and to be the sheep among the sheep. Critical thinking is not only useless but can lead to serious capital losses if leverage is used.

The current recurring theme is inflation. It goes without saying that interest rates are the ultimate weapon to fight this repulsive hydra. However, the rebound of the US economy, favoured by colossal stimulus plans, will lead to a very attractive return on the dollar. On the strength of this certainty, Forex traders have favoured the dollar last month.

On the other hand, the still reassuring speeches of the FED officials are playing in favour of a return to serenity. Inflation would be temporary, a consequence of a rebound in the economy that would not be of great importance. Moreover, Europe will also benefit from the recovery of its member economies as the pandemic recedes.

Economically and fundamentally, buyers are convinced of the merits of the Euro's rise.

KEY CHART ELEMENTS

The 1.21 resistance level made buyers wary in the middle of last week, but this was without counting on their determination once they became convinced that fears about inflation could prove to be illusory. The passage of 1.21 is no longer open to discussion and the path to 1.235 is clearly open.

MEDIUM-TERM FORECAST

Given the key chart factors we have mentioned, our medium-term view on the EUR/USD is positive. We will maintain this positive view as long as the EUR/USD is positioned above the 1.21 resistance level, which has been turned into a support level.

MEDIUM-TERM FORECAST

Based on the key chart factors we have mentioned, we have a positive medium-term view on the EUR/USD. Our bullish scenario price target is $1.2350.