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#1 07-06-2021 13:51:54

johnedward
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From: Paris - France
Registered: 21-12-2009
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EUR/USD: nervousness increasing at the $1.22 level

EUR/USD: nervousness increasing at the $1.22 level


The EUR continued its nervous but ultimately trendless swings below $1.22 after the relief (for equity managers at least) caused at the end of last week by the publication of the monthly federal jobs report.

The number of jobs created in the private sector (excluding agricultural activity) jumped to 560,000 (compared to 265,000 the previous month), while still coming in below the consensus. The unemployment rate continues to fall, to 5.7% of the active population, and the rise in wages is +0.6%, significantly higher than expected (+0.3%). This is a satisfactory report for growth managers, who favour growth stocks, which are the most sensitive to the return of the inflation theme.

The content of this report will be decisive for the Fed in its reflections between now and the next meeting of its Monetary Policy Committee. The idea, for the time being, of a marked slowdown in the pace of asset purchases (tapering) is somewhat remote. The Fed will combine this NFP report with the consumer price index figures, which will be the statistical highlight of the week on Thursday.

"The next Fed FOMC meeting in the US will be on 15-16 June and it could be increasingly difficult for Powell to convince the markets that inflation will remain transitory and avoid talking about adjusting asset purchases. Especially if Thursday's data comes out above consensus," warns Vincent Bay (IG France), referring to Thursday's release of the US consumer price indices.

On the European side, the Governing Council will be held a little earlier in the month (10 June), and the challenge is clearly not to dampen investor morale. The analysts at CM/CIC Merket Solutions see "an ECB that is still cautious and accommodating in its communication and in its tools. It should no longer commit to buying more assets than it did in January and February (a promise that was made for a quarter in mid-March) due to greater confidence in the outlook, leading to an upward revision of its economic scenario. On the other hand, it will insist that it will buy what is needed to maintain very accommodative financial conditions, even if it means buying large amounts if necessary."

Basically, the issue for traders in the coming weeks is to anticipate as best as possible the dynamics of the policy rate differential between the two sides of the Atlantic, a differential that will determine a "pay" differential between the two currencies.

On Monday, there was little to get excited about on the statistics front, with a slight disappointment on the German industrial orders front in April (-0.2%), but a sharp rise in the Sentix consumer confidence index in the Eurozone to 27.9, the highest in 3 years.

Right now, the pair is trading at $1.2164.

KEY CHART ELEMENTS
Friday's pullback to the 20-day moving average (in dark blue), which was quite sharp by the way, was not followed by immediate bearish confirmation. The doji that is currently forming attests to this. The trend line mentioned remains technically a resistance, but its role needs to be confirmed before resuming bearish positions on the EUR/USD, which is subject to powerful opposing forces.

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.

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