EUR/USD: a new technical framework is appearing

The scene remains bearish and the sharp break of the 100-day moving average (in orange), while the Fed was firming up the tone somewhat last week, hinting at raising rates twice in 2023. This reinforces the potential for the USD to be "rewarded" in the months to come, or more precisely, the gap in the potential reward against the euro. This hawkish message contrasts with the persistence of dovish communication from the ECB.

In fact, Christine Lagarde was answering questions from the European Parliament's Committee on Economic and Monetary Affairs early Monday afternoon. And investors were visibly reassured to hear the head of the European monetary authority say that monetary tightening was premature as it would pose a risk to the ongoing economic recovery.

Jerome Powell, heard yesterday afternoon on Wall Street before the US Congress, was awaited after the relative tightening of his communication at the end of the last FOMC. According to the president's introductory remarks, published in advance, he emphasised the "sustained improvement" in the economic situation in the United States, while judging that if inflation has "increased significantly" in recent months, this increase should dissipate, reaffirming the scenario of a transitory rise in prices.

As a reminder, without tightening the screws too much, the Fed Chairman revealed last week part of his intentions, without however panicking the bond markets. "According to the new Dot plots of the Fed members, the Fed is now counting on a first interest rate hike in 2023, earlier than previously anticipated," says John Plassard, Mirabaud Securities. "Its new projections show that a majority of its 11 top officials now expect at least two quarter-percentage point rate hikes in 2023. Seven members, however, see a first hike in 2022. So this is more hawkish than investors expected. More hawkish (hawk, in investor jargon, as opposed to dove), but still leaving a clear horizon for investors..."

Chris Williamson, Chief Business Economist at IHS Markit, comments: "The survey data point to very strong GDP growth in the Eurozone in the second quarter, followed by an even more impressive economic recovery in the third quarter. However, the strength of growth, both in Europe and globally, has been reflected in an imbalance between supply and demand, with severe raw material supply difficulties and labour shortages making it impossible for companies to meet demand. Yet the resulting continued strengthening of corporate pricing power will result in increased inflationary pressures in the coming months."

Right now, the pair is trading at $1.1946.
KEY CHART ELEMENTS
The $1.2000 has been ruthlessly broken, as has the 100-day moving average (in orange), which is undergoing a downward slope inflection. Friday's black marubozu* is the perfect chart and technical translation of the market psychology. The idea remains negative below the 20-day moving average (in dark blue).

*This type of candle, characterised by a long body, without any shadow, or almost without shadow, shows a continuous mobilization of the camp (seller in this case) on the time unit in question.

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 $1.1939. The price target of our bearish scenario is $1.1699. In order to preserve the capital invested, we advise you to place a protective stop at $1.2001.

The expected return on this Forex strategy is 240 pips and the risk of loss is 62 pips.