EUR/USD: neither currency seems to be at an advantage

The forces continue to balance out on the currency pair, both for the euro as a "risk" currency and for the dollar as Biden's historic budget proposal is seen as favourable to the markets.

Forex traders will of course be watching for any signs of a US economy heating up in the midst of a post-virus recovery. A transitory price increase is currently favoured by the Fed. However, unveiled on Friday, the core PCE index (excluding food and energy prices), which is closely watched by the Fed, rose to 3.0% in April, its highest level in  29 years, when the consensus was for it to be slightly below 3%. Note that the Chicago PMI, a leading indicator of the economy's health, exceeded expectations at 75, the highest since November 1973.

The manufacturing PMI indicator in synthetic data for the whole of the Eurozone came out for May slightly above expectations, at 63.2, and the very first estimates of the consumer price index now reach 1.9% at an annualised rate, in the first estimates for last month, according to EuroStat for the broadest base. Adjusted for volatile elements, the price increase is at 2.0%, not far from the ECB's "target"... Good surprise concerning the unemployment rate in the Euro Zone, which is down to 7.9% of the active population, in particular thanks to the good German results.

The Fed will be particularly attentive to the federal report on US employment (NFP report for Non Farm Payroll), at the end of the week. The signals of potential imbalances between supply and demand in the labour market will not fail to provide food for thought for the powerful monetary institution, which will be meeting this month at a high-stakes FOMC meeting.

"In the event of lower than expected figures, the markets could be reassured about the continuation of the FED's asset purchases", even imagines Vincent Boy (IG France). "Indeed the Fed follows two main objectives to adjust its monetary policy. Inflation and full employment and although inflation should largely exceed the US Fed's targets over the next few months, if not beyond, usage still remains under pressure."

Preview on Thursday with the traditional survey from private HR firm ADP.

Right now, the pair is trading at $1.2206.

KEY CHART ELEMENTS
The EUR/USD is without a very short-term trend, above a 20-day moving average (in dark blue), a trend line whose role as a support is gradually weakening. A break of this support would cause a release of selling energy, a movement for which we have no precursor signal yet.

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 $1.2266.