EUR/USD: the current price level is highly sensitive

The fundamental bias remains unchanged, and clearly bearish on the EUR/USD. However, the swings were tending to balance out in the short term as fresh US inflation figures are expected. Although the Fed prefers the PCE (personal consumption expenditures) as a benchmark, a deviation from the consensus could naturally influence the tone of the powerful monetary institution.

The various consumer price indices will allow us to gauge the degree to which prices are heating up, and thus to refine the estimated timing of the Fed rate hike. Excluding food and energy (items considered volatile), consumer prices are expected to rise by 0.4% in monthly terms.

As a reminder, last week the Fed concluded a new meeting of its Monetary Policy Committee (FOMC). By insisting on the transitory nature of the price hike, the Federal Reserve certainly confirmed its commitment to reducing its asset purchase policy, but showed no signs of rushing to raise rates as such.

For Vince Manuel, Investment Director at Indosuez Wealth Management, during the Q&A session, "Jerome Powell reiterated a certain detachment from the September dot plots by indicating that rate hikes had not been the subject of debate... for the moment. One way to interpret this is to remember that Jerome Powell does not intend to commit to a rate hike at the same time as the tapering which is due to end in July at the announced pace. This therefore leaves the door open for a rate hike at the end of 2022."

"However, expectations outside the Fed point to a possible rate hike as early as June 2022, justified by persistent inflation" notes Vince Boy (IG France). Jerome Powell had also acknowledged that inflation could be less transitory than expected and that it should exceed the Fed's initial expectations. Thus, to justify the continuation of this low rate policy, the Fed indicated that it was monitoring the job market, which still requires a significant improvement before changing rates.

In Tuesday's statistics, traders took note of the "ZEW", short for the index of German investor and analyst sentiment by the ZEW (Zentrum fur Europaische Wirtschaftsforschung). The index jumped to 31.8, easily beating an already optimistic target. On the other side of the Atlantic, the producer price index came out in line with expectations for the month of October (+0.6%).

Today in the US: weekly jobless claims at 14:30 and crude oil inventories at 16:30.

Right now, the pair is trading at $1.1521.

KEY CHART ELEMENTS
The break of the 20-day moving average (in dark blue), now confirmed on 29/10 in daily data, and in an outburst of volatility, whose bearish orientation is accentuated, invites traders to resume their bearish initiatives on the pair. First target locked at $1.1360, second at $1.1150. A break of a fragile support zone at 1.1530 would increase volatility. The working band between $1.1530 and $1.1675 would then be obsolete.

MEDIUM-TERM FORECAST
Given the key chart factors we have mentioned, our medium-term view on the EUR/USD is negative.

Our entry point is $1.1556. The price target of our bearish scenario is $1.1361. In order to preserve the capital invested, we advise you to place a protective stop at $1.1651.

The expected return on this forex strategy is 195 pips and the risk of loss is 95 pips.