EUR/USD: A final turn of the screw before a long pause?

While risk appetite is momentarily drying up in the financial markets, in search of certainty on the solidity of the American banking system, and with the approach of important monetary meetings, the EUR/USD currency pair confirmed on Tuesday its frank exit from a bullish channel.

The Fed will complete a new Monetary Policy Committee (FOMC) tomorrow, at the end of which a new 25 bps tightening is favoured by a large part of investors. The press conference on whether or not the so-called terminal rates will be reached will be decisive.

As for the European Central Bank (ECB), it will conclude its Governing Council meeting on Thursday. With "fundamental pressure on prices [still] strong", for Konstantin VEIT, portfolio manager at PIMCO, who sees a further 25 basis point rise. "We still have a long way to go," summarises the asset manager, who highlights the still high level of inflation.

While US inflation slowed to 4.1% year-on-year in March from 5% in February, the underlying component (excluding energy and food) has made investors nervous. Core inflation rose by 0.4% over the month and slowed less than expected over the year to 4.7%, compared with 4.7% in March and 4.6% anticipated by economists surveyed by the Wall Street Journal. In Europe, inflation also remained high in the euro zone countries. In France, for example, it rebounded to 6% year-on-year in April, after slowing to 5.8% in March, according to a first estimate published by the INSEE survey agency.

To be complete on the statistical front, the Chicago PMI index exceeded expectations by coming out sharply higher at 48.6, while the consumer confidence index (U-Mich, revised data), which has been under close surveillance since the disappointment caused by the Conference Board's index, came out close to expectations, at 63.6 points. So much for the statistics published at the end of last week. Yesterday, the US ISM Manufacturing PMI for April came in close to target at 47.

Right now, the EUR/USD is trading at $1.0966.

KEY CHART ELEMENTS
In line with the "discipline" we have been promoting for several weeks, the bottom exit of the leading currency pair from an uptrend channel means that long positions must be cut, pending a suitable entry point.

MEDIUM TERM FORECAST
Based on 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 $1.0860 and resistance at $1.1190.