EUR/USD: governor's council has been digested, US jobs report now awaited

The euro is regaining momentum against the dollar, in the wake of the European Central Bank's press conference yesterday, following a meeting of the Governing Council.

Christine Lagarde, with all the semantic precautions that are necessary, prepared the ground for a monetary turn by the ECB, a turn that is certainly much less tight than the one that the Fed will try to negotiate. Under pressure after the publication, on Wednesday, of an unprecedented surge in inflation in the euro zone (+5.0% over one year in December, +2.2% adjusted for energy, food, alcohol and tobacco), Christine Lagarde acknowledged that the rise in consumer prices was stronger than expected, also admitting that the risks were on the rise, while repeating her expectation of a slowdown between now and the end of the year. The ECB President also assured that the ECB Governing Council would not make any hasty decisions on monetary policy but did not reaffirm that a rate hike this year was "very unlikely", as she had said at the last meeting.

"The ECB went a step further by saying that inflation was higher than expected and that it could stay higher than expected, at least for several months," says Vincent Manuel, investment director at Indosuez Wealth Management. "What has also changed," he continues, "is the perception of the labour market, which should at some point generate upward pressure on the level of inflation, but to a lesser extent than in the US or the UK. With unemployment at a record high of 7% and the participation rate back to pre-pandemic levels, the labour market is perceived to be very strong and could lead to upward pressure on wages, which the ECB does not yet see. This can be interpreted as a critical point that will have an impact on ECB policy in the future."

Manuel believes that "the ECB's economic projections to be published in March could revise upwards the inflation forecasts for 2022 and especially for 2023, as well as the forecasts for the labour market. On the latter, the ECB expects unemployment to reach 7.2% in December 2022, a level already exceeded as it already stands at 7.0% in December 2021.", and that "the ECB could accelerate the end of asset purchases under the JPA in Q3 2022, which could pave the way for a rate hike in late 2022 or early 2023."

Forex traders will approach this final stretch of the week under the sign of US employment, whose tensions are watched like milk on the fire by a Fed whose role is to prevent any wage and price inflation spiral. It is in this context that the results of the NFP (Non Farm Payrolls) report, a federal report on US private employment for the month of January, will be dissected at 14:30. As a reminder, on Wednesday, the private firm ADP highlighted a "destruction" of more than 300,000 jobs, whereas the financial community was rather expecting a soft landing, after almost 800,000 jobs were created in the private sector (excluding agriculture) in December. Yesterday, for completeness, weekly jobless claims for week 04 came in lower than expected at 237,000.

At midday on the foreign exchange market, the Euro was trading at around $1.1740.

KEY CHART ELEMENTS
For the first time since 16 June (when it was on a sharp break), the spot has touched its 100-day moving average (in orange), which is still a very significant downtrend line. Forex traders will continue to adopt a patient stance, waiting for a satisfactory entry point, as the consolidation that began at the end of November takes a very broad form.

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 $1.1260 and resistance at $1.1530.