EUR/USD: the ECB is not facing the same issues

The Fed has paved the way for monetary normalisation, setting the stage a little more clearly. It plans to stop its bond-buying program in March and to raise rates by 0.75, in three steps, over 2022. And this in order to fight inflation, which is no longer temporary. Combined with the new economic projections, this strategic commitment by the Fed was not considered more hawkish than expected. "It must be said that this (not too tight) shift was anticipated. Several former Fed members, such as W. Dudley, D. Lockhart and more recently N. Kocherlakota, published op-eds calling on the Fed to quickly tighten monetary policy to bring inflation back to a more acceptable path," says Alex Baradez (IG France) before the FOMC meeting ended.

Finally, "a decision fairly in line with expectations" for Ronan Blanc, Analyst Manager at Financière Arbevel. "The Fed is trying to become an active player in its monetary policy again, with some success (a mistake half forgiven?). And fortunately for the Fed, the peak of cyclical inflation seems to be near. The longer term question is to know what level it could land on after this peak. That is probably where it will be expected. For now it is buying time and doing it quite well." A "courageous" decision, for John Plassard, (Mirabaud), for whom the Fed "is finally tackling rising inflation before it potentially gets out of hand. Investors welcomed this decision by betting that the Fed will not find itself "behind the curve" by adopting a much more hawkish tone and by planning 3 rate hikes in 2022.

Hawkish indeed, but not much more than the trading rooms were anticipating. For the currency pair we are interested in here, it is the relative attitude of the ECB that will be a potential catalyst. The European Central Bank is wrapping up a Governing Council meeting today. But on this side of the Atlantic, "the situation is very different with the Eurozone experiencing less inflation and a less tight labor market than on the other side of the Atlantic," notes the Capital Markets Strategies team at Tikehau Capital. "The ECB is very much expected to follow up on the Pandemic Emergency Purchase Programme (PEPP) which is due to expire in March. In order to avoid a too pronounced march with the APP (Asset Purchase Programme) with less flexible criteria and not allowing the purchase of Greek government securities, a new sequence will be announced. It will have to convince that it addresses the fears of stakeholders on a possible financial fragmentation between the so-called "core" countries and the peripheral zone."

In the immediate future, there will be few surprises regarding the publication of PMI indicators in services and industry, in first estimates for the current month. On the other hand, there is a huge gap in the Eurozone's trade surplus for October. EuroStat puts it at 2.4 billion euros, against a target of 5.7 billion and a September figure of +6.1, seasonally adjusted.

Right now, the pair is trading at $1.1309.
KEY CHART ELEMENTS

The shorting trend was strongly reinforced by the break of a technical zone at 1.1530, on marubozu on 10  November. This was a major development, which resulted in a massive release of selling energy. The short term is aligned with the bearish medium term on the EUR/USD, but the entry point is no longer optimal, as the likelihood of a contending bounce forming at this point is increasing. Forex traders will prefer to stay out of the spot for the time being while waiting for a suitable entry point.

A break of the November lows would signal the end of a straitjacketed lateralisation, which may be triggered by monetary announcements this week, or at least by inflections in the language used by the big money makers.

MEDIUM-TERM FORECAST

Based on the key chart factors we have mentioned, our medium-term view on the EUR/USD is neutral.

We will maintain this neutral view as long as the pair is positioned between support at $1.1150 and resistance at $1.1360.