EUR/USD: a test of the long moving average with US consumer price index

The rebound of the Euro vs the Dollar, which started on 13 May in a significant volatility, found an important confrontation zone in the 50-day moving average (in orange, still bearish), triggering technical signals as one (if not THE) statistical publication of the week approached, namely the PCE prices (for personal consumption index). This is the measure of choice, even more so than the CPI (consumer price indexes) for the Fed in its reading and analysis of inflation, the essential working basis in the construction of its monetary policy. This desire to control inflation obviously remains at the heart of its priorities. "The American institution will continue [...] to raise its rates as much as necessary, in an approach that is as "data dependent" as ever, until inflation decreases in a "clear and convincing manner"", for Sebastien Grass (Auris Gestion).

The question is to what extent the aggressiveness of US monetary policy will affect growth. "If the negative impact on growth of such a tightening is not in doubt, the Fed chairman continues to believe that a soft landing remains possible. Indeed, Jerome Powell considers that the US economy is particularly resilient with a low unemployment rate, solid consumption and healthy balance sheets and that it is therefore able to cope with a more restrictive monetary policy without the landing being too hard", continues Mr Grass.

Last week, which started in a gloomy manner on this front across the Atlantic, continued without going anywhere. The growth figures missed expectations with a contraction of 1.4% in preliminary data. On the other hand, the unemployment figures fell slightly more than expected last week in the United States to 209,000 after 220,000 the week before.

Right now, the pair is trading at $1.0764.

KEY CHART ELEMENTS
The EUR/USD spot is now back in contact with its 50-day moving average (in orange), a trend line with a strong downward slope. An interesting entry point to target a fall in the spot towards its annual lows, while keeping a stop close, is now emerging.

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 $1.0716. The price target of our bearish scenario is $1.0455. In order to preserve the capital invested, we advise you to place a protective stop at $1.0766.

The expected return on this forex strategy is 261 pips and the risk of loss is 50 pips.