EUR/USD: Psychological factors lead to stagnation

The dollar should continue to appreciate as the US central bank is much more aggressive than the European central bank in fighting inflation. It is true that the economies of the two continents are not comparable and that the prospect of a recession in the United States is not really frightening because it could be short-lived. In any case, "horse remedies" are not the least effective. In Europe, there is the added difficulty of managing large differences in rates. In addition, a recession could prove to be a real problem.

Clearly, there are many arguments in favour of a deeper depreciation of the European currency. However, parity has proven to be an inescapable psychological factor and strong enough to counter rational economic explanations. Given this state of affairs, and as long as it lasts, we believe that we should avoid being in the seller's camp, but not buy recklessly either. The FED starts its meeting today. A 0.75% hike is expected or even announced. It goes without saying that if the increase is 1%, parity would certainly be broken.

For the time being, traders are looking to move away from parity and the euro is currently trading at $1.0112.

KEY CHART ELEMENTS
Between a lower than expected "earnings" potential and the risk of recession, particularly in view of the weight of German industry, the euro has seen its rebound since reaching perfect parity dry up. The entry into a rebalancing phase, not without volatility, is the chosen option. Neutral opinion issued, avoiding taking positions in the immediate future, still waiting for the outcome of the FED meeting.

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 EUR/USD is positioned between support at $1.0000 and resistance at $1.0274.