EUR/USD: perilous trading within a wedge

The euro/dollar currency pair remained volatile, falling back into a wedge as risk appetite eased in equity markets on both sides of the Atlantic, while the Kremlin's pledge to "drastically" reduce military activity in the Chernigury region was not met. On Russia's attitude after the meeting of the two delegations in Turkey, Thomas Giudici, co-head of bond management at AURIS Gestion, proposes the following interpretation: "If Russia's statement, which now says it is concentrating on the Donbass after having allegedly achieved its initial objectives, may appear to be an admission of failure (even if a disinformation operation cannot be ruled out, as was the case during the pre-invasion military exercises), it does not augur well for a calming of the conflict. On the contrary, it could even get more bogged down while, at the same time, the Western countries are putting up a united front and progressively strengthening their sanctions." Talks are expected to resume tomorrow in Turkey. In the meantime, Moscow is "promising" a ceasefire in Mariupol.

In the immediate future, the inflationary question (linked to geopolitics) and tensions on the labour market (which themselves generate inflation) will be at the heart of the debates. First elements of answers this morning with a confirmation of an acceleration of inflation in France, beyond expectations, and tomorrow with the monthly federal report on employment. Yesterday, the ADP (Automatic Data Processing) survey came out right on target, with 455,000 jobs created in the private sector (excluding agriculture). Disappointing final US Q4 GDP data at +6.8% vs. 7.10% expected.

For France, including energy and food, "inflation should exceed 5% in the coming months, before falling sharply" for Charlotte Montpellier, economist at ING. "For the next few months, we expect inflation to continue to rise, driven by energy and food prices, but also by inflationary pressures that are increasingly spreading to all sectors of the economy. We believe that a quarter of negative GDP growth cannot be ruled out. Demand will therefore lose momentum, which will impact on the pricing power of companies, limiting inflationary pressures. We expect inflation to average above 4% for this year, but then to fall back quickly and remain below 2% in 2023."

To be followed by the weekly unemployment benefit registrations, household income and expenditure and PCE prices (personal consumption expenditures), one of the Fed's favourite measures for assessing the level of inflation.

Right now, the pair is trading at $1.1098.

KEY CHART ELEMENTS
As long as the spot rate is above $1.10, the oxygen supply is assured. Below this level, there is no shortage of technical arguments to justify taking short positions. For the time being and in the absence of an interesting entry point, traders will avoid exposure. As for the background matrix, it remains unchanged. The transition phase between 4 and 23 February, in the form of a non-federating slide below the 100-day moving average (in orange), is over. The bearish background bias is aligned with the short term, and a remarkable red body candle pattern on Thursday 24/02 illustrates the firm grip of the selling camp. With 5 red-bodied candles from 1 to 7 March, and a continuous selling mobilization in week 09, the picture remains bleak. Confirmation of a wedge formation is underway. A navigation within it is still to be expected. We will therefore keep an eye on its two limits, represented in black on our chart.

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 $1.1000 and resistance at $1.1140.