EUR/USD: things look bearish for the euro, US inflation under surveillance

The dollar accelerated sharply against the euro yesterday, on expectations of a stronger "return" on the greenback, after the latest U.S. inflation figures, in the sense of June consumer prices.

Concerning this American inflation, in data corrected for food and energy (volatile elements), consumer prices progressed in monthly rhythm in June of 1.0%, very largely beyond the target (+0,3%), confirming the movement of rise of May (+0,6%).

The working hypothesis of one or two increases in federal key rates over the course of 2023 is neither invalidated nor confirmed. But if we add to this release OPEC+'s silence on August production quotas, inflation is clearly re-emerging in the main market drivers for the months to come.

On the ECB side, Christine Lagarde announced on Monday that the Eurozone central bank would update its communication on the future direction of its interest rates and asset purchase programs ("forward guidance") in line with the new "symmetric" inflation target of 2% at the end of the strategic review. "Not revealing, or very few details, on the content of these new "guidelines", the European central governor nevertheless indicated that the emergency quantitative program deployed during the pandemic, whose total envelope amounts to 1,875 billion euros, will be maintained "at least" until its expiration in March 2022 and that afterwards a transitional mechanism could be developed to accompany the recovery. To sum up, the ECB does not intend to stop its support policy too prematurely and should therefore maintain an accommodative approach for an extended period of time," notes Western Union Business Solutions analyst Guillaume Dejean.

Right now, the pair is trading at $1.1849.

KEY CHART ELEMENTS
The $1.2000 level has been ruthlessly broken, as has the 100-day moving average (in orange), which is currently 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). Note that the slope of the long moving average mentioned above is in the midst of affirming and validating its bearish inflection.

After a contentious reaction from June 21-23, the spot quickly reversed, tracing three long high shadows in a row.

A fragile guardrail $1.1848/$1.1850 is now broken.

We keep the 20-day moving average (in dark blue) as a benchmark below which the bearish idea remains fully valid. After a quick breakout on Tuesday, July 13, the volatility on nervous bearish access has increased.

*This type of candle, characterised by a long body, with no shadow, or almost no shadow, shows a continuous mobilization of the side (seller in this case) on the time unit in question.

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

Our entry point is $1.1786. The price target of our bearish scenario is $1.1621. In order to preserve the capital invested, we advise you to position a protective stop at $1.1876.

The expected return on this strategy is 165 pips and the risk of loss is 90 pips.