EUR/USD: the pair is compressed by opposing forces

The market psychology remains unchanged for the EUR/USD today, with the euro resisting profit taking on the back of risk appetite barely dented by the rate hike; and the dollar pushing, since the interventions of various Fed executives, in favour of maintaining a relatively firm monetary policy.

As a reminder on Thursday, the producer price indexes for the month of January in the United States, largely above expectations (+0.6%), as well as the weekly unemployment benefit registrations, below 195,000 new units, once again showed, as leading indicators of inflation, the tensions on the economic machine. This is another reminder to the Fed that it will be essential to maintain a firm monetary policy throughout 2023.

Inflation was, in the end, "firmer than expected in January", according to Jeanne Bitton, Head of Strategy at BFT IM. "Consumer price inflation fell to 6.3% per year overall and 5.7% in the core. Excluding housing, core inflation is reassuringly moderate at 4% per annum but the housing component is accelerating to +9% per annum! The expected fall in house prices is being held back by the shortage of housing and is being passed on with a long lag, hence the persistence of the upward trend in the housing component."

A continuation of this balance of power is expected in the immediate future, especially as we will not have a benchmark from Wall Street, which will remain closed due to a holiday (Commemoration of George Washington's birth).

Not much to look forward to on the statistics front this Monday. However, business will resume in earnest tomorrow with a battery of activity indicators (PMI, purchasing managers' surveys).

Right now, the pair is trading at $1.0674.

KEY CHART ELEMENTS
After gradual weakening from February 6 to 14, the 50-day moving average (in orange) finally gave way. This underlying trend line is now under threat from its 20-day counterpart (in dark blue). This would increase the strength of the sell signal. The crosses of these two remarkable moving averages have been giving excellent positioning and trade monitoring signals for many months.

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.