EUR/USD: Inflation hit 7.5% in the eurozone in April (year on year)

The dollar showed strong resistance at the end of last week with the release of the US GDP for the first quarter. As a reminder, the growth rate there came out at a quarterly rate of 1.5%, against expectations of +1%, according to the latest BEA figures, published on Thursday. The second estimate is scheduled for 26 May. This rules out the hypothesis of a 75 bp hike at the next FOMC meeting on 3 and 4 May, and further strengthens the scenario that is holding sway: that of a 50 bp hike in Fed Funds.

On Friday, the main event for traders was the publication of eurozone inflation, which came out at an annual rate of 7.5% for April, up from last month (+7.4%). "Inflation should stabilise at a high level over the next few months," says Vincent Manuel, Investment Director at Indosuez Wealth Management. "Compared to the US, energy represents a more important contribution and could be a source of adjustment in the near future. Clearly, the EU's energy vulnerability and the current geopolitical situation reduce visibility in the coming months. In this context, a more pronounced energy shock cannot be totally excluded."

Excluding food, energy, alcohol and tobacco, prices rose by 3.4% in the Eurozone, well above expectations.

Right now, the EUR/USD pair is trading at $1.0550.

KEY CHART ELEMENTS
Since breaking out of a broad consolidation wedge on 4 April, the short side has been confident, with 17 red bodies in the last 21 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 break now validated leads to the locking of 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 $1.0545. The price target of our bearish scenario is $1.0251. In order to preserve the capital invested, we advise you to place a protective stop at $1.0671.

The expected return on this forex strategy is 294 pips and the risk of loss is 126 pips.