EUR/USD: a pullback hits $1.10

In perfect sync with the CAC and the DAX, the euro reacted against the safe-haven dollar on Wednesday, tracing a pullback towards a key zone ($1.10), as Biden announced an embargo on the import of natural gas and Russian oil into the United States, ahead of the outcome of new European Central Bank (ECB) Governing Council meetings.

While the Fed's equation is probably less complex, the question of the angle of the upcoming monetary shift is the issue. While a 50 bp increase in Fed Funds was almost a consensus not long ago, a 25 bp increase is the scenario now clearly envisaged by Powell himself in his semi-annual hearing before the Parliament. The first elements of the answer will be given on 16 March at the end of the FOMC (Monetary Policy Committee).

"For the ECB, which is holding its monetary policy meeting this week, the situation is more complex," according to T. GIUDICI, "because the zone is more directly impacted by the Russian-Ukrainian situation. If Christine Lagarde's insinuations (and unspoken words) in February were arguing for a more hawkish ECB, it could finally catch up with the branches of the December decisions that foresaw an increase in the APP (to compensate for the PEPP) until the end of 2022 before a possible first rate hike in 2023." First elements of response today at the end of the Board of Governors.

On the agenda this week, Tuesday's encouraging figures on the dynamics of German industrial production (+2.8% in January at a monthly rate), well above expectations. On the other hand, the NFIB index of U.S. small businesses, published on Wednesday disappointed by contracting to 95.6 points.

Right now, the EUR/USD is trading at $1.1036.

KEY CHART ELEMENTS

The transition phase between 4 and 23 February, in the form of a non-federating slide below the 100-day moving average (orange), is over. The bearish bias is aligned with the short term, and a remarkable red body candle on Thursday 24/02, illustrates the firm grip of the selling camp. With 6 red-bodied candles in the last 6 candles, the last one still being traced, and a continuous selling mobilization last week, the picture remains bleak. We are revising our bearish targets to $1.0685, and then if necessary to $1.0454. For the time being, and in the absence of an interesting entry point, traders will avoid taking positions in the immediate future.

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 pair is positioned between support at $1.0685 and resistance at $1.1000.