EUR/USD: volatility on the pair is intense

The not-so-easy digestion of the latest US inflation figures, combined with the intense geopolitical pressure between Moscow and NATO, which is weighing as much on risk appetite as on energy prices, is leading to a very sharp decline in the pair.

As a reminder on US inflation, the statistical highlight on Thursday, the consumer price indexes came out sharply higher than expected, thus raising fears of a faster and stronger tightening by the Fed. Excluding food and energy (which are considered volatile), prices rose by 0.55% in December, against a consensus of +0.4%. In November, prices had already risen by 0.5%. On an annualised basis, prices rose by 5.9%, the first time this has happened since 1982. Including energy and food, annual inflation is 7.6%. The 10-year Treasuries have also broken the 2% barrier. This is enough to revive the scenario of a "double" federal rate hike as early as next month, i.e. a 50 bp increase in one go.

"This is a very broad-based increase in US prices in January," says Ben Kukla, Senior Investment Officer at Indosuez Wealth Management, who adds: "The temporary increases in energy prices and the repercussions on the supply chain are taking longer than expected to fade. Looking ahead, tight labour markets in some sectors are putting upward pressure on average hourly wages (up 5.8% on an annual basis in January, the highest rate in 15 years) and increasing the risk of sustained inflation."

For Vincent Boy (IG France), "markets will be paying close attention to the situation in Ukraine after the US (once again) made it clear that Russia could invade Ukraine at any time now. The latter added that Moscow could invent a surprise pretext to act, but so far Russia has shown no signs of further aggression following its troop build-up on the border."

According to the White House, the Russian military is now ready to invade Ukraine at any time if President Vladimir Putin so decides.

"The price of oil is thus being closely watched and could reach the $100 mark in the short term and weigh a little more on rising inflation," Boy adds.

Right now, the pair is trading at $1.1297.

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. My very broad consolidation has taken shape below $1.1460, which is a chart resistance level. The field is immediately open towards the lower limit of this very wide range, towards $1.1115.

MEDIUM-TERM FORECAST
Given the key chart factors we have mentioned, our medium-term view on the EUR/USD is negative.

Our entry point is $1.1310. The price target of our bearish scenario is $1.1117. In order to preserve the capital invested, we advise you to place a protective stop at $1.1371.

The expected return on this Forex strategy is 193 pips and the risk of loss is 61 pips.