EUR/USD: The latest economic stats point to renewed strength of the USD

Weekly registrations for unemployment benefits, U-Mich consumer confidence indices, PCE retail price index... Statistical data showing an overheating of the American economy, against a backdrop of chronic inflation and tensions on employment will not have failed in the second part of last week. As a consequence, the foreign exchange market is faced with a reality: that of having to deal with Fed Funds still high throughout this year, without any certainty about the value of the so-called terminal rates.

On Friday, the PCE (for personal consumption expenditures), the Fed's favorite measure in its inflation assessment, came out above the target on Friday (+0.5% month on month against +0.3%).

"Members of the Fed in the US or the ECB in Europe, toughened their tone a little more, indicating that the fight against inflation was far from over and that monetary policy should continue to tighten and that it should remain restrictive for longer than investors anticipated,” notes Vincent Boy (IG France).

Moreover, the geopolitical situation reminds investors of risky assets on the occasion of the first anniversary of the Russian military activity in Ukrainian territory. If "the problem of a possible collapse of the supply of raw materials in Europe has been largely resolved, [...] a Russian offensive in the spring could quickly create a new situation", says Marcus Poppe, co-head of European stocks at DWS.

Next up today are housing sales in progress at 16:00 (Central European time).

Right now the EUR/USD is trading at $1.0573.

KEY GRAPHIC ELEMENTS

After gradually weakening from February 6 to 14, the 50-day moving average (in orange) ended up giving way. This underlying trend line is now under threat from its 20-day counterpart (in dark blue). The sell signal would then gain in intensity if necessary. The crossings of these two remarkable moving averages have indeed provided excellent positioning and trade monitoring signals for many months. This crossing is in progress, moreover in a relatively important angle.

MEDIUM TERM FORECAST

In view of the key graphic factors that we have mentioned, our opinion is negative in the medium term on the EUR/USD parity.

Our entry point is at $1.0561. The price target of our bearish scenario is at $1.0239. To preserve the capital invested, we advise you to position a protective stop at $1.0701.

The expected return of this strategy is 322 pips and the risk of loss is 140 pips.