EUR/USD: what's new with the pair since the consumer confidence index figures?

The bias remained bullish on the EUR/USD, a bias supported in particular thanks to the publication on Wednesday of a barometer indicator of the health of consumption across the Atlantic, feeding a little appetite for risk in the final stretch of the year.

This is the US consumer confidence index (Conference Board), an indicator with a strong impact in the event of a deviation from the consensus, for an economy where, structurally, most wealth creation depends on domestic consumption. And there was a deviation from the consensus, as the indicator rose sharply to 108.4 points, against a target of 100.9 points.

"Consumer confidence rebounded in December, reversing consecutive declines in October and November to reach its highest level since April 2022," says Lynn Franc, senior director of economic indicators at Conference Board. "Indices of current conditions and expectations improved due to consumers' more favorable views of the economy and employment. Inflation expectations fell in December to their lowest level since Sept. 2021, with recent declines in gasoline prices a major reason. Plans for the holidays have improved, but plans to buy expensive homes and appliances have fallen further. This shift in consumer preference for big-ticket items will continue into 2023, along with inflation headwinds and interest rate hikes."

The last part of the week will be busy on the macroeconomic front, with clues to confirm or deny the trends seen with the recent release of very disappointing PMI indicators (1st estimate for December). Forex traders will therefore be watching inflation today via the PCE (Personal consumption expenditures price index) figures, which are the key measure for the Fed in its assessment of the heating up of prices.

As a reminder, traders were particularly nervous at the press conferences following the last monetary policy meetings of the year last week. The press conferences were rather hawkish in tone, taking the wind out of some of the trading rooms.

"The Federal Reserve believes that the US economy is still too resilient and that persistent tensions in the labour market make it impossible to stabilise wages at this time", summarises Emmanuel Auboyneau, AMPLEGEST Associate Manager. "The 2% inflation target is still too far away and does not justify a change in monetary policy. The Federal Reserve is therefore undermining investors' hopes that the rate hike cycle will end soon."

"In Europe, Christine Lagarde is also adopting a very offensive tone, far from recent market expectations. She reiterates her commitment to fighting inflation and warns the financial community that this fight will continue well into 2023."

At midday on the foreign exchange market, the euro was trading at around $1.0579.

KEY CHART ELEMENTS
The 20-day moving average (in dark blue) continues to play its role as chart support. A positive view remains above this straight-line trend line.

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

Our entry point is $1.0632. The price target of our bullish scenario is $1.1189. In order to preserve the capital invested, we advise you to place a protective stop at $1.0434.

The expected return on this forex strategy is 557 pips and the risk of loss is 198 pips.