EUR/USD: Technical shackles and risk of a false exit

The shackles are still firmly tightened on the EUR/USD pair in the short term, on a level close to $1.13, while the underlying trend of the currency pair remains bearish, in view of the increasing prospect of a gap in "earnings" between the two currencies, after the major monetary meetings (ECB Governing Council and Fed FOMC) at the end of the year 2021.

On the statistical front yesterday, the final IHS Markit manufacturing PMI data for the Eurozone for December came in right on target at 58.0, with the surprise score from the French component offsetting the slight disappointment from the German component.

Commenting on the latest survey figures, Joe Hayes, Senior Economist at IHS Markit, says, "The second half of 2021 has been particularly challenging for Eurozone manufacturers, but the latest survey results did not dampen the festive mood at the end of the year, with the December data showing signs of easing the supply crisis that has been hampering production lines in Europe for several months. The input delivery time index recovered for a second consecutive month to post its highest level since February, signaling less deterioration in supplier performance at year-end."

The institute also emphasizes the "easing of supply tensions [which] also spilled over into purchasing prices, with manufacturers reporting the smallest increase in costs since April."

Right now, the pair is trading at $1.1290.

KEY CHART ELEMENTS

For the time being, the Euro/Dollar currency pair is still in a wedge-shaped consolidation pattern, which is part of a powerful bearish bottom dynamic. The configuration remains heavy, but we warn against the temptation of an early return to bearish positions, the "risk" of a false exit through the top, in the very short term, being present. We are still waiting for a much better entry point.

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 $1.1216 and resistance at $1.1360.