EUR/USD: the overall bias is flattening

The EUR/USD continued to neutralise around $1.22 as speculation grew about the outcome of the two monetary meetings (FOMC and Governing Council) in June. Christine Lagarde acknowledged last week that it was far too premature to consider easing monetary support in the face of a still "uncertain" recovery. In the middle of last week, the US markets went through an air pocket, as signals of inflationary pressures multiplied, before recovering with the release of the Minutes, which reassured the trading rooms.

"The Fed has regularly said that it will give the markets "plenty of advance notice" of any changes in monetary policy. "Very early" may therefore imply a minimum of two quarters. Barring unexpected scenarios, such as the emergence of vaccine-resistant variants, substantial progress should have been made on the price front but also on the labour market by the end of this year. Rob Kaplan of the Dallas Fed believes that the unemployment rate could be back to around 4% by the end of the year," notes Alex Baradez (IG France), who adds, for the European side:

"We don't see why the ECB would keep such an accommodating stance when the lockdown releases are happening in the eurozone and vaccine is having its effects on the healthcare systems...but we don't see the urgency of hardening the tone before the Fed either with an economic cycle that is a bit off."

In terms of statistics, the easing of health restrictions is beginning to bear fruit: private sector activity recorded its strongest growth in more than three years in the euro zone in May (at 56.9 after 53.8 in April). In France, private sector activity also recorded its second consecutive month of growth in May and even accelerated (to 57 points, after 51.6 in April).

Right now, the EUR/USD is trading at $1.2258.

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 traced on 30 April was followed by the white marubozu of equivalent magnitude on 7 May, already fully retraced... This shows the short term nervousness on the currency pair. Neutral opinion offered pending affirmation of a directional. The 100-day moving average (in orange) is well established horizontally.

MEDIUM TERM FORECAST
Given 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 $1.2045 and resistance at $1.2210.