EUR/USD: the dollar enjoys a slight advantage

Much ado about nothing... The EUR/USD didn't react much at the end of last week, with two major events taking place at the same time: the ECB Governing Council meeting and the US Consumer Price Index.

Without really surprising investors, the "doves" of the European Central Bank won out once again, with the institution announcing that the rapid pace of asset purchases under the Emergency Pandemic Purchase Programme (EPPP) would be maintained in the third quarter. However, the central bank was considerably more confident about the economic outlook, significantly raising its GDP growth projections for 2021 and 2022 and indicating that the risks to the economy were now "balanced" (rather than more to the downside as had been the case previously). This analysis of the situation is consistent with the assumption of a gradual exit from the ultra-accommodating policy phase from the autumn.

Vince Manuel, Chief Investment Officer at Indosuez Wealth Management, supports this idea: "Now comes the difficult part of the equation: the future of the asset purchase programmes. The decision to launch the Emergency Pandemic Purchasing Programme (EPPP) was made against the backdrop of a massive pandemic and a historic recession. Now that vaccination is underway and the return to work is intensifying, with GDP growth revised to 4.5% this year, it may be difficult for the ECB to justify extending the EPPP beyond spring of next year. Behind closed doors, we can expect lengthy discussions among ECB Council members on this topic in the coming months, and we should not expect the PEPP to become a QE measure for all time."

Fred Ducrozet and Nadia Gharbi, strategist and economist respectively at Pictet Wealth Management, in line with this scenario, offers a quantification: "One possible scenario would see PEPP purchases averaging around €75bn per month in Q3 (taking into account 'market conditions and seasonal factors'), slowing to €60bn in Q4, before a gradual reduction is implemented in the 1st semester of 2022. This scenario would leave some €50 billion unused in the €1,850 billion envelope."

The refinancing rate (0.00%), the marginal lending facility (0.25%) and the deposit facility (-0.50%) remain unchanged.

As for the Fed, it will meet its Monetary Policy Committee on 15 and 16 June and it will be particularly interesting to gauge the difference in the usage of the tools used and in the tone adopted. And it will have to deal with the price hike signals published last week by the Federal Department of Labour. Excluding items considered volatile (energy, food, alcohol and tobacco), prices rose in May at a monthly rate of 0.7%, above a consensus of +0.5% and a month of April at +0.9%. We can therefore speak of a heating up of prices, without being able to characterise its temporality. The Fed continues to describe this price increase as temporary.

Right now, the pair is trading at $1.2119.

KEY CHART ELEMENTS
The 20-day moving average (in dark blue), a valuable benchmark and decision-making tool for many months on the spot market, is in the process of confirming a downward trend. The high shadow of the 9 June candle, associated if necessary with a red candle without a low shadow, would support a bearish scenario that could be materialised by taking short positions as long as the Euro/Dollar is sailing below the above-mentioned trend line.

MEDIUM-TERM FORECAST
Given the key chart factors we have mentioned, our medium-term view on the pair is negative.

Our entry point is $1.2110. Our bearish scenario price target is $1.1963. To preserve the capital invested, we advise you to place a protective stop at $1.2231.

The expected return on this forex strategy is 147 pips and the risk of loss is 76 pips.