EUR/USD: Fed funds: a slower, higher and longer increase?

The EUR/USD was back at parity, while the latest Fed FOMC is still being interpreted. The different readings that can be made are far from binary, and the components of the equation are becoming more complex. César Ruiz, Head of Investments and CIO at Pictet Wealth Management notes that J Powell "hinted that the final Fed Funds rate - estimated at 4.6% in the central bank's dotted path - could be revised upwards (the market currently anticipates a final rate close to 5.2% by mid-2023)."

"The rate hike process could therefore be slower, but also longer, while aiming higher," says the asset management decision maker.

The main macroeconomic events of the week are consumer prices tomorrow and the consumer confidence index on Friday. The results of the mid-term elections will also be scrutinised. All the seats in the House of Representatives will be renewed and more than a third of those in the Senate. "According to the latest polls, the Republicans are the overwhelming favourites to take back the majority in the House of Representatives. The race is tighter in the Senate, where the Democrats have a chance of retaining a narrow majority," note Oddo economists. "The loss of just one of the two chambers of Congress would be enough to revive arguments between the two parties over the budget and the federal debt ceiling," they warn.

The energy of the pullback was sustained by two publications that came out significantly above expectations: German industrial production (+0.7% in September in monthly terms) and the Sentix index of investor confidence in the Eurozone, which at -31, although in negative territory, made a nice recovery. The firm specialising in behavioural finance provided the following interpretation: "The overall index rose by 7.4 points to -31, which is still not a signal of a trend reversal. But the rise in the situation and expectation values shows how sensitively investors react in their economic expectations to signals from the energy market. For this is the cause of the promising changes. October showed warmer than usual temperatures and this means that gas storage facilities in Germany, for example, are full to the brim, more than expected for November, gas prices on the spot market have collapsed and fears of a catastrophic gas shortage are fading."

Right now, the pair is trading at $1.0005.

KEY CHART ELEMENTS
In a volatile environment, the currency pair has successively traced two marubozus in daily data, of equal magnitude, and comparable level, around the perfect parity, which continues to constitute a pivot level in the immediate future. The main issue at the moment is positioning relative to the 50-day moving average (in orange). Knowing that the last green body dates from the 26/10 "session", and that this trend line is in the process of reaffirming its negative slope, we will talk about a false exit and reintegration. We are now witnessing a second pullback on the perfect parity. The bearish message is reinforced.

MEDIUM TERM FORECAST
Given 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 $0.9665 and resistance at $1.0175.