EUR/USD: a rebound that's encountering resistance

The euro had already seen its rebound against the dollar prematurely thwarted today by a 4th leak detected on the NordStream 1 and 2 gas pipelines. A "deliberate act" is preferred here, for what would constitute the symbol of a crisis at the same time diplomatic, energy and environmental. There is no immediate reason for a lasting rebound on the euro. The balance of power is however momentarily found on the currency pair in the sense that the decline in yields of U.S. government bonds, which has allowed Wall Street to rebound, does not "pull" the greenback in the immediate. The greenback is more than ever a safe haven...

And the underlying trend remains that of an increase in the "remuneration" differential between the two currencies, in favor of the USD. And this is due to the difficulty of the Fed's monetary policy, even if it is bellicose, to curb inflation. "Employment remains dynamic and will propel wages to ever higher levels," say Pictet AM strategists. "The population has saved heavily during the health crisis, and consumers can accept price increases. More importantly, rents should continue to rise at a high rate. History tells us that rising housing prices precede rising rents. This correlation is not perfect, but it is enough to suggest that rents will rise sharply in 2023. Indeed, real estate prices have jumped more than 30% since the pandemic began."

Right now, the pair is trading at $0.9706.

KEY CHART ELEMENTS

While volatility has exploded since the last move below parity, this is precisely the time to be wary and avoid getting caught up in the temptation to strengthen one's bearish positions on the currency pair, which can trigger a counterintuitive move towards its notable 20-day moving averages (in dark blue) at any time.

MEDIUM-TERM FORECAST

Given the key chart factors we have mentioned, our medium-term view is positive on the EUR/USD.

Our entry point is $0.9675. The price target of our bullish scenario is at $0.9999. In order to preserve the capital invested, we advise you to position a protective stop at $0.9589.

The expected return on this strategy is 324 pips and the risk of loss is 86 pips.