EUR/USD: all eyes are on today's inflation figures

A marked lull in the EUR/USD, before today's highly anticipated release of the US Consumer Price Index, the statistical highlight of the week. The currency pair will have benefited last week from a slightly more hawkish tone from Christine Lagarde, with the end result being a gain of more than 300 pips over the whole week, gains largely made at the end of the ECB Governing Council.

"In the future, the main challenge for the ECB will be to properly measure the tightening of financial conditions without damaging the economy too much," says Cesar Ruiz, Head of Investments and CIO at Pictet Wealth Management, who anticipates "two interest rate hikes by the ECB of 25 bp in 2023."

For Sebastien Galy, Senior Macro Strategist at Nordea Asset Mgmt, "the ECB stayed the course on monetary policy at the 3 Feb. meeting, while warning of the risks of higher inflation in the near term."

"It indicated that the next meeting in March would be key, as it will have fully assessed medium-term inflation dynamics by then. In sum, the ECB still sees inflation as primarily dependent on supply constraints and high energy prices, while labor market pressures may not yet be strong enough to support significant inflation, even with unemployment at 7%," he explains.

On the other side of the Atlantic, the prospect of a "double" hike in March (i.e. 50 bps) does not hold water. A 25 bp hike seems assured in any case, in a context of chronic tensions on the labour market, against a background of persistent inflation. Forex traders will therefore be paying close attention to today's publication of the various CPIs (consumer price indices).

"A higher-than-expected reading could lead to further shocks in the market, as it could imply an even faster tightening of US monetary policy, especially after last week's NFP came out strongly accelerating," warns Vincent Boy (IG France).

In the immediate term, there is little to report on Tuesday. The NFIB index of small businesses did not stray far from the target, at 97. As for the monthly U.S. trade deficit (December), it came in at -$80.6 billion, slightly beating the consensus. Already published, the German trade surplus for the month of December missed expectations (+6.7 billion euros), compared to +11 billion euros in November.

Right now, the pair is trading at $1.1429.

KEY CHART ELEMENTS

For the first time since June 16 (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 posture of patience, waiting for a satisfactory entry point, while the consolidation that began at the end of November takes a very broad form.

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 EUR/USD is positioned between support at $1.1360 and resistance at $1.1460.