EUR/USD: declining forces still dominate

The "scissor effect" that we mentioned in our previous analysis of the currency pair is still happening. The prospect of an even faster than expected Fed Funds hike is weighing on the single currency, as are fears of an impact of the China confinements on global growth and new developments in the Ukraine conflict, as some 40 powers, including the US, are meeting this morning in Germany to agree on additional aid to Kiev. The Euro is trapped by this "scissors" effect: the combination of a loss of risk appetite, which it is paying for as a barometer, and the prospect of a lower "return" in the years to come against the dollar.

The Fed's rhetoric has become particularly firm since J. Powell clearly put on the table the option of raising Fed Funds by 50 basis points at the next FOMC meeting at the beginning of May, in order to deal with inflation, the "peak" of which no one can see. In addition to price dynamics, it will be particularly interesting to measure the evolution of tensions on the labour market, an essential criterion for predicting wage increases. The verdict will come at the end of next week with the April NFP report.

"The foreign exchange market has a strong conviction that rate hikes will be significant in the US in the coming months, which will support the US dollar." Will Gerlach, Country Manager France at iBanFirst, said that "the US Federal Reserve's FOMC meeting scheduled for May 3 and 4 should mark an acceleration in the process of monetary normalisation in the United States in order to fight inflation (which reached 8.6% in March over one year and could easily climb to 9.9% by June)".

In terms of statistics, which took a back seat on Tuesday, traders had to deal with the publication of durable goods orders for the month of March, up by 1% in monthly terms, excluding transport equipment. In addition, the US consumer confidence index (Conference Board) remained almost perfectly stable at 107.4, slightly below expectations.

KEY CHART ELEMENTS
Since breaking out of a broad consolidation wedge on 4 April, the selling camp is confident, with 15 red bodies in the last 18 candles drawn. A break of a fragile intermediate floor at $1.0850, which we described as a guardrail, has released additional selling energy in a bout of volatility. This now validated breakout is locking in new bearish targets. Towards $1.0250. It will then be time to contrariously anticipate a powerful challenge rebound.

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 $1.0574. The price target of our bearish scenario is $1.0250. In order to preserve the capital invested, we advise you to place a protective stop at $1.0711.

The expected return on this forex strategy is 324 pips and the risk of loss is 137 pips.