EUR/USD: Powell expected to issue job warning

A very important point first, as we approach two major monetary meetings: if the trading community expects a "firmer" ECB than the Fed, it will take a more offensive tone than expected from C. Lagarde, AND a more "flexible" tone than expected from J. Powell to further catalyse, at this stage, the catching up of the Euro against the Dollar. If the difference between the tones used by the two major central bankers is expected, the slightest elements of language allowing to refine the rate calendar, on both sides of the Atlantic, will be scrutinised.

The ball opens today with the Fed, which is wrapping up its FOMC meeting. The rate verdict, unsurprisingly, is expected at 20:00 and the press conference at 20:30 pm (European time). The European Central Bank will conclude its first meeting of the year tomorrow.

A limited increase of 25 bps for the Fed Funds is almost a given, considering the progress made on the slowdown of price increases. "It is especially Mr. Powell's speech that will be scrutinised and that will have to make us forget the procrastination of the last two meetings" says Emmanuel Auboyneau, Managing Partner of AMPLEGEST. "Mr. Powell will remain focused on wage inflation and will have to give us an outlook on this structural part of inflation. He should also have a look at economic activity, which appears more resilient than expected."

Indeed, employment continues to be a hard point, given the chronic tensions. On jobs, traders will have valuable benchmarks this week (new JOLTS offers, ADP survey, weekly jobless claims and Friday's highlight, the federal private employment report). Any sign of persistent and chronic employment tension will be cause to anticipate continued tension on the monetary string. And may push back the estimates of the pivot date.

Yesterday's stats included missed targets for the Conference Board's U.S. consumer confidence index, which fell to 107, and for the Chicago PMI, which came in at 44.2. On the macroeconomic agenda this Wednesday, the ADP survey on U.S. private employment at 14:30, the new job offers (JOLTS) and the ISM manufacturing at 16:00. The Fed's monetary policy decision is expected at 8:00 pm, before a high-stakes press conference at 20:30 (European time).

In the immediate term, the Euro is in an upward position against the Dollar, after the publication of core inflation (excluding volatile elements*), at +5.1% annualised in first estimate for January. This further supports the thesis of a firm tone adopted at tomorrow's press conference by the powerful financial institution in Frankfurt.

Right now, the EUR/USD is trading at $1.0894.

KEY CHART ELEMENTS

The uptrend in the Euro currency pair is now well established. We are in a situation where the RSI oscillator is flirting with its "overbought" boundary without ever crossing it. The view will remain positive as long as the closing data of each daily candle is above the 20-day moving average (in dark blue), which has been trending positively since the white marubozu on November 04.

* food, energy, alcohol and tobacco

MEDIUM-TERM FORECAST

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

Our entry point is $1.0892. The price target of our bullish scenario is $1.1459. In order to preserve the capital invested, we advise you to position a protective stop at $1.0679.

The expected return on this Forex strategy is 567 pips and the risk of loss is 213 pips.