EUR/USD: US inflation isn't eroding appetite for risk

Buying and selling forces were finally balanced yesterday, with the graphically perfect illustration of the doji, according to the traditional Japanese nomenclature, in the wake of US inflation figures for last month.

On an annualised basis, and for the broadest basket of products, consumer prices rose by 6.3%, slightly slower than in December, whereas expectations were more "optimistic" (+6.3%). Traders are gradually digesting the prospect of a continued firm monetary policy throughout 2023. Excluding food and energy, prices rose by 0.3% per month, within the target range.

The market, while not overly optimistic, remains present in so-called risk assets, fully integrating the fact that inflation is not likely to ease immediately. Its "control" through an adapted monetary policy is more important.

Sebastien Grasset, Head of Asset Management at Auris Gestion, noted at the beginning of the week, in a weekly note, that "the Fed Chairman reminded us that the fight against inflation "will take quite some time" and that the road would be "long, even bumpy" to return to the 2% inflation target. Further rate hikes may therefore be necessary if the US economy fails to make enough of a dent, with the main focus remaining on services inflation and labour market pressures."

On the macroeconomic agenda today, the US retail sales and the Empire State manufacturing index at 14:30 (central European time), as well as the monthly federal report on industry at 15:15. Also noteworthy is an address by ECB President Lagarde to the European Parliament in Strasbourg at 15:00.

Right now, the pair is trading at $1.0718.

KEY CHART ELEMENTS
The EURUSD spot is in the process of wrapping around its 50-day moving average (in orange), with no clear technical signals emerging. Note that an acceleration of volatility to the downside would fully validate a breakout, which comes after a gradual weakening from 5 to 10 February.

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 $1.1045.