EUR/USD: what's new with the pair?

The euro completed a pullback on the lower limit of an ascending channel today, as the outcome of a new Fed Board of Governors approaches, and the day after a Fed FOMC which leaves traders interrogative.

"The ECB finds itself faced with a complicated situation", for Manuel Auboyneau, Manager at Amplegest. “Inflation, which is still too high, is falling only too slowly and would require a continuation of a restrictive monetary policy. But on the other hand, the European economy is showing signs of a slowdown which must be watched. strong could weaken banks (as in the United States) and further increase the cost of debt. We believe that the ECB should raise rates another one or two times maximum before a period of stabilisation."

The latest inflation figures indeed raise questions about the trend towards a soft landing in prices, or a plateau. As a reminder on Tuesday, inflation in the Euro Zone was confirmed at 5.6% on an annual basis, excluding food, energy, alcohol and tobacco. Furthermore, the manufacturing PMI, in final data for April, came out close to the first estimates, at 45.9 in the Euro Zone, and 44.4 for the German component alone.

Max Mura, IG Rates & Credit Manager at Swiss Life Asset Managers France thinks "that the maximum deposit rate should stabilize at 3.5% and that once this "plateau" is reached, rates should stabilize for a relatively long at this level."

He believes that "inflation should indeed remain at elevated levels due to second-round effects linked to rising wages. In addition, the expected slowdown should not be, in [his] central scenario , of sufficient magnitude to warrant too precipitous a rate cut."

The Fed, which yesterday completed a new Monetary Policy Committee (FOMC), as expected tightened its screws by 25 basis points on its Fed Funds, without providing clear clarifications on the agenda for the next decision. Is the pivot imminent? Are the terminal rates reached? Is a long break on set planned?

"While the consensus was expecting a break after last night's rate hike and a drop before the end of the year, it will have to change its mind," says John Plassard of Mirabaud. "If Jerome Powell [the president of the Fed, editor's note] has announced (more or less officially) a pause in the monetary institution's rate hike, it is (for the moment) unlikely that the pivot (the drop rates) is close," he adds.

In terms of stats yesterday, the unemployment rate in the Euro Zone contracted to 6.4% of the active population. In addition, the survey by the private human resources firm ADP has revived concerns about inflation, highlighting figures illustrating recurring tensions on the employment front, with job creations in the sector in particular. private exploding expectations, flirting with 300,000. Verdict Friday with the federal report NFP (Non Farm Payrolls). The ISM Services indicator in final data for April came out on target, at a level close to 52 points. As a reminder, a score above 50 reflects an expansion dynamic in the sector under consideration.

To follow are the NFP figures on employment tomorrow. The opportunity to measure even more precisely the persistent degrees of tension on the American labor market, tensions themselves generating inflation. The main meeting of the day is the outcome of the Board of Governors of the European Central Bank. 

Right now, the EUR/USD is trading at $1.1020.

KEY GRAPHIC ELEMENTS
In accordance with the "discipline" that we have been promoting for several weeks, the exit from the bottom of the flagship currency pair of an ascending channel imposes to cut long positions, pending a suitable entry point.

MEDIUM TERM FORECAST
In view of the key graphic factors that we have mentioned, our opinion is neutral in the medium term on the EUR/USD.

We will maintain this neutral opinion as long as the EUR/USD) parity prices are positioned between the support at $1.0860 and the resistance at $1.1190.