EUR/USD: a brutal liberation of dollar buying energy

The selling energy built up over the past two weeks has been released, in a bout of volatility in the Euro/Dollar currency pair, with the greenback validating its potential higher "earnings" currency ticket. A scenario supported by Thursday's outcome of the Fed's Monetary Policy Council (FOMC) meeting.

As widely expected, the powerful monetary institution headed by J. Powell did not activate any monetary leverage but revealed more precision on its intentions. Regarding the timing of the rate hike, 2023 is mentioned, with probably 2 tap tightenings over the year... As for the increase in its economic forecasts, they include a solid post-Covid recovery.

Without tightening the screws too much, the Fed Chairman revealed part of his intentions, without panicking the bond markets. Yields on 10-year US Treasuries did not explode after the press conference, but reached, before stabilising quickly, a zone close to 1.56 (10-year Treasuries).

"According to the new Dot plots of the Fed members, the Fed now expects a first interest rate hike in 2023, earlier than previously expected," says John Plassard, Mirabaud Securities. "Its new projections show that a majority of its top officials now expect at least two quarter-percentage point rate hikes in 2023. Seven members, however, see a first hike next year. This is therefore more hawkish than investors expected".

There were no major macroeconomic figures on the agenda yesterday. However, Chinese industrial production rose (at an annual rate) by 8.7% last month, below expectations (+9.1%).

In the US, the Philly Fed manufacturing index and weekly jobless claims at 14:30 are also on the agenda. In the meantime, currency traders have just taken note of the final Eurozone consumer price indexes for May, which confirm the 2% increase over one year, for the broadest base of products, which is the "target" of the European Central Bank.

Right now, the pair is trading at $1.1937.

KEY CHART ELEMENTS
The $1.2000 level has been ruthlessly broken, as has the 100-day moving average (in orange), which is undergoing a downward slope inflection. The idea remains negative below the 20-day moving average (in dark blue)

MEDIUM-TERM FORECAST
Given the key chart factors we have mentioned, our medium-term view on the Euro Dollar (EURUSD) is negative.

Our entry point is $1.1931. The price target of our bearish scenario is $1.1699. To preserve the capital invested, we advise you to position a protective stop at $1.2008.

The expected return on this forex strategy is 232 pips and the risk of loss is 77 pips.