EUR/USD: a busy week for traders this week

After the Euro's violent bearish outburst last week, catalysed by the Fed's tone and the overall drying up of risk appetite in the financial markets, it's time for a consolidation in the EUR/USD. It will be interesting to see what form this takes, in order to best anticipate the formation of a new bearish entry point. The week will be rich with the backdrop of heightened geopolitical tensions between Moscow and Kiev, and the potential impact of Western sanctions on energy prices.

Last week's high-risk meeting was marked by the Fed's FOMC. If, as widely expected, no federal rate hike was on the agenda - the tap will start to be tightened in March -, Powell remained evasive in distilling calendar clues on the pace of Fed Funds hike over 2022. In the end, it was impossible for traders to refine the number of hikes (3? 5?).

In the end, a scenario, which seemed "extreme" even a few weeks ago, of five Fed Funds hikes over the year, with a "double whammy" - why not as early as March - is not excluded from the range of possibilities.

In terms of statis, the week will be marked by a battery of PMI indicators in the Eurozone today in final data for January, inflation figures in the Eurozone on Wednesday and the ADP survey on U.S. employment, the outcome of the ECB Governing Council on Thursday and the monthly federal report on U.S. jobs Friday.

In the meantime, traders were able to take note of the preliminary GDP data in the Euro Zone, for the fourth quarter in first estimate, at +0.3%, slightly below expectations in quarterly rate.

On Friday, the main "macro" event was the PCE (Personal Consumption Expenditures) prices, the Fed's favorite barometer for taking the temperature of prices, even before the CPI. They rose in December at a monthly rate of 0.5%, in line with expectations, according to the Bureau of Economic Analysis, on a basis excluding energy and food (the most volatile items in the basket).

Right now, the pair is trading at $1.1158.

KEY CHART ELEMENTS
The break of $1.1260 has been accompanied by a powerful increase in volatility. The spot is now visiting levels not seen since the end of May 2020. As seen in the preamble, the exercise now consists in assessing what the shape of the upcoming consolidation could be in order to optimize a new bearish entry point. We prefer to stay out of the spot during this wait.

MEDIUM TERM FORECAST
Given 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 EUR/USD is positioned between support at $1.1116 and resistance at $1.1183.