EUR/USD: short-term direction remains unclear, but overall trend remains bearish

The general bias remains bearish and short-term forces tend to balance out on the EUR/USD, while we enter the heart of things until the end of the week, both in terms of corporate publications (GAFAMs as a barometer will be monitored) and stats.

In any case, the focal point of the week is expected on Thursday, with the outcome of a new European Central Bank (ECB) Governing Council meeting. While a status quo on rates is widely expected, details on the timing of asset purchase relief are expected, at least between the lines.

In Pictet Wealth Management's latest Flash Note "Future of QE", Frederic Ducrozet, a strategist, estimates that ECB purchases under the QEAP will be reduced to €50 billion per month in the first quarter of 2022 before being fully phased out in March of the same year. He expects the ECB to double its regular asset purchase programme to €40 billion per month from April 2002, but its commitment to unlimited QE is likely to weaken. Frederic expects the ECB to revise the pace of asset purchases every quarter and reduce them to €20 billion per month by 2023."

This meeting will probably be an opportunity to "prepare the ground for the big meeting in December", for ING economist Charlotte Montpellier, who detects "a growing divide between the 'hawks' and the 'doves' within the ECB; that is, between ECB members favouring an exit from emergency measures and those who are even more fearful of medium-term inflation being too low rather than too high."

Right now, the pair is trading at $1.1595.

KEY CHART ELEMENTS
With the 20-day moving average (in dark blue) having been breached again, in a high level of volatility, we are momentarily unlocking our bearish targets ($1.1486 and $1.1360), and will wait for a break below this dynamic technical level to work the spot lower again. We are not far from this break, but it is not formally validated in daily data.

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

We will maintain this neutral view as long as the EUR/USD is positioned between support at $1.1532 and resistance at $1.1674.