EUR/USD: balance is shifting in favour of the dollar

The dollar has held the advantage over the euro since the break of the 20-day moving average (in dark blue) on the spot market on 3 June, and the increasing hope that the dollar will become more "profitable" than the euro in the coming months. The tone used today by the Fed at the end of its Monetary Policy Committee meeting will provide more clues.

"With an inflation scenario well bought by the markets and job figures still disappointing, there is little justification for the Fed to change its monetary policy setting," expects Frank Dimier, Global CIO Fixed Income at AllianzGI.

"However, Powell could change his communication. Recently, Powell said "not even thinking about thinking about tapering". With growth momentum picking up, bringing hope for usage, and with no pressure from markets to react to rising inflation, the context has clearly changed, and the Fed could announce that it has started thinking about a tapering in its purchase programme, without however advancing on a date."

Verdict today at 20:00 (European time) for the elements of monetary policy (rates, tools, levers), and at 20:30 for the press conference.

Yields on 10-year Treasuries are not warming up at all, stuck below 1.49, despite recent warnings on the inflation front.

"There are several factors that could explain this movement," says César Perez Ruiz, Head of Investments and CIO at Pictet Wealth Management. "First, the credibility of the Fed's repeated statements that any tightening of QE policy or interest rate hikes will be gradual. Second, the effects of accelerating core inflation, in the absence of outliers, and the reopening of the economy remain minimal. And thirdly, we have seen a rebalancing of investor positioning in the bond markets, with foreign investors again buying more than selling. We will be watching for any indication of the timing of US monetary policy tightening after the Fed meeting this week."

Excluding items considered volatile (energy, food, alcohol and tobacco), prices rose last month at a monthly rate of 0.7%, above a consensus of +0.5% and a month of April at +0.9%. That is 5% annualised... The Fed insists on the "temporary" nature of the rise in prices, just as it insists on the transitory nature of an imbalance between supply and demand on the usage market.

In the meantime, traders have just learned of the surprise contraction in the Eurozone's trade balance, in final data for the month of April, to +9.4 billion dollars.

Right now, the pair is trading at $1.2125.

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 this Friday, would support a bearish scenario materialized by taking short positions as long as the EUR/USD 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 $1.2123. Our bearish scenario price target is $1.1965. In order to preserve the capital invested, we advise you to place a protective stop at $1.2181.

The expected return on this Forex strategy is 158 pips and the risk of loss is 58 pips.