EUR/USD: traders are looking for clues as to key rate trajectories

The EUR/USD was capping at the top of the flag, as crucial monetary deadlines approach next week. The ECB ends its next Board of Governors on 15/12. The Fed completes its next Monetary Policy Committee (FOMC) on 14 December. The two dates are to be marked in red on the calendars of forex traders, as the signs on the respective trajectories of the key rates are awaited.

For Erick Muller, Director of Products and Investment Strategy at Muzinich & Co, "the FOMC members' projections (the DOTS) will send a clear message about the intentions to keep rates high for a long time, so as not to validate market expectations of a "pivot" that may seem premature for the Fed. This should result in a higher median projection towards 5% for 2023 but also much more concentrated projections between 4% and 5% for 2024 than 'last September, where the 2024 projections were very scattered."

For the ECB, the strategist anticipates a "complex" situation. The powerful monetary institution of Francort "advocated targeted, limited and temporary fiscal support." [But] "Eurozone governments are not following these recommendations, and this could lead to higher rate hikes in the Eurozone. We expect deposit facility rates to reach 3% by next summer" .

In Wednesday's stats, German industrial production in October fell (-0.1%) but much less than expected. Note that Q3 GDP data in the Euro Zone has just been revised upwards, to +0.3% quarter on quarter.

Right now, the EUR/USD is trading at $1.0536.

KEY GRAPHIC ELEMENTS

Volatility remains high on the spot which traces a broad consolidation, whose structure remains to be defined, around $1.0300. A continuation of these nervous oscillations is the preferred option, an unattractive graphic scenario for taking positions. We would prefer to stay out of the spot for the time being. The flag terminals are clearly marked, between 1.0240 and $1.05. The eventual formation of a diamond figure is not excluded.

MEDIUM TERM FORECAST

In view of the key graphic factors that we have mentioned, our opinion is negative in the medium term on the EUR/USD parity.

Our entry point is at $1.0513. The price target of our bearish scenario is at $1.0101. To preserve the invested capital, we advise you to position a protective stop at $1.0631.

The expected return of this forex strategy is 412 pips and the risk of loss is 118 pips.