EUR/USD: a deceleration of US consumer prices expected

The euro continues to build a range-bound consolidation phase against the USD, near $1.0750, in a forex market that is trying to put together the puzzle of the shape of the Fed Funds curve, with the following pieces: a confusing federal jobs report with dual lessons, strong interventions from Fed executives, and a bland, evasive speech by the Fed boss yesterday at a conference organised by the Bank of Sweden.

On US employment, "investors have [...] chosen to see the glass half full on the US employment figures. While the job market remains as strong as ever with sustained job creation and even a drop in the unemployment rate, the market preferred to focus on the decline in wage pressures," says Mr. Giudici, head of bond management at Auris Gestion.

The unemployment rate, expected to be stable at 3.6% of the active population, came out strongly down at 3.4%, which inevitably made the hawks of the Federal Reserve wince. 222,000 jobs were created in December in the private sector (excluding agriculture), a figure that exceeded expectations.

Regarding the recent restrictive comments of Fed executives, Mary Daly, president of the San Francisco Fed, said she expected the U.S. central bank to push rates above 5% before pausing. Atlanta Fed President Raphael Bostic made similar comments, seeing the Fed reaching a terminal rate between 5% and 5.25%, against a current range of 4.25% to 4.50%.

It is in this context that traders will approach tomorrow the highly anticipated release of consumer price figures in the United States for the month of December. On a broad product base, prices are expected to decelerate to +6.25% annualized.

At midday on the foreign exchange market, the euro was trading at around $1.0745.

KEY CHART ELEMENTS

The break of the 20-day moving average (in dark blue), which until now served as a perfectly materialised trailing stop, requires us to cut our long positions, while waiting for a relevant entry point. However, no pronounced bearish reversal pattern has been identified. Conversely, only a breach of the $1.0750 volatility high would validate a bullish extension at this stage.

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 $1.0435 and resistance at $1.0855.