EUR/USD: IFO data is strong, the euro is holding solid

In a climate where risk appetite, although slightly down, persists at the beginning of 2023, the euro continues to stand proudly against the USD, as indications of a "soft landing" of the main economic poles in the Eurozone multiply. The much anticipated first estimates of PMI indicators confirmed this framework yesterday.

The German industrial component, with its traditionally strong impact, even rose above the 50-point mark, which, as a reminder, separates a contraction from an expansion in the sector in question. The services component for the Euro Zone as a whole also rose above the 50 mark.

Chris Williams, Chief Business Economist at S&P Global Market Intelligence, offers the following insights into the raw survey data: "The chances of the Eurozone escaping a recession appear to be improving, with the latest flash PMI data showing the region's economy stabilising in January. The contraction may indeed have peaked in October, when fears of an energy crisis began to fade, thanks in part to falling prices, which were in turn helped by particularly mild temperatures and generous government support."

Equivalent indicators will also have exceeded their targets on the other side of the Atlantic, although remaining well below 50 points. On the other hand, the Richmond Fed Manufacturing Index continued its nervous oscillations, dipping back into negative territory at -10, completely missing expectations.

The single currency is currently trading around $1.0880, as important deadlines approach: the PCE prices, the Fed's flagship measure of inflation assessment, and the FOMC, the outcome of which is next Wednesday. "The Fed, has given up on 75bp hikes, after 4 successive ones and could even, according to market players' expectations increase by only 25bp at the FOMC next February 1." says Vince Bay (IG France).

In the immediate future, the IFO business climate index in Germany is perfectly on target, at 90.1, up slightly.

Right now, the EUR/USD is trading at $1.0883.

KEY CHART ELEMENTS

In the absence of validation of a bottom-up pattern, a continuation of neutral, thin range oscillations near the 20-day moving average (in dark blue) is expected. The very structure of the current consolidation is a testament to the Euro's advantage at the start of 2023.

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 $1.0645 and resistance at $1.1190.