EUR/USD: the 3 key factors

There are three major determinants for the EUR/USD:

The first - and most obvious - is the recent history, powerfully bearish, which means that even in the absence of major benchmarks, the single currency remains under strong pressure, by inertia.

The second is the reaction of the equity markets on both sides of the Atlantic to the announcements of a much lesser danger than initially feared regarding the Omicron variant.

And the third is the nervous wait for the next US inflation figures, with the consumer price indexes on Friday. This is prime material for the Fed in its monetary thinking. The goal is to fine-tune the expected number of federal rate hikes, in the context of a price hike that, by J. Powell's own admission, is no longer transitory.

On the health issue, there was a sigh of relief, allowing the single currency, the reference barometer of risk appetite, to keep its head above water. The director of the WHO's emergency department, Mike Ryan, was keen to reassure people that Omicron was not dangerous. And Anthony Fauci, the "Mr. Health" of the White House, relying on the information provided by South African doctors, had already shown himself on Monday to be relatively optimistic about the degree of danger of Omicron, the new variant of the coronavirus. The scientist - appointed in January 2020 to the crisis cell formed by Donald Trump against the coronavirus, and confirmed by his successor Joe Biden as his main adviser on the matter - was even more affirmative this Tuesday during a telephone interview with AFP. If it will take at least two weeks to determine it with precision, "it is almost certain" now that Omicron "is not more serious than Delta". Better, some signs suggest "that it might even be less severe".

In terms of recent stats, the German "ZEW" came out very close to 30 points, slightly down on the consensus, and thus beating the target. However, ZEW President Professor A. Wambach made the following comments: "The German economy is suffering from the latest developments of the virus. Persistent bottlenecks are weighing on production and retail trade. Lower economic expectations show that hopes for much stronger growth in the next six months are fading. In particular, earnings expectations for export-oriented and consumer-related industries are being assessed more negatively."

Right now, the pair is trading at $1.1326.

MEDIUM TERM FORECAST

Based on 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 $1.1150 and resistance at $1.1360.