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

The short-term bearish message delivered graphically on the EUR/USD is taking hold as markets digest the US's inflation figures for April.

"But it is too early to claim victory on inflation," warns Will Gerlach, Regional Director France and UK Iban First. "Indeed, core CPI inflation was 0.4% in April and 5.6% year-on-year. This is still too high. However, this shouldn't force the Fed to raise rates in June."

The whole point of this market sequence is to refine, for the next few months, the relative paths of Fed Funds and key rates in the Eurozone. "With the Fed seemingly in "pause mode" while other central banks, notably the ECB, continue to raise rates, this new report is not a game changer."

"In a few months' time, the fall in US inflation will allow real wage inflation to return to positive territory, which should allow consumption to hold up in the US," says François Rimeu, strategist at La Française Asset Management, in a market that is sending out contradictory signals.

In this respect, the publication of the consumer confidence index (U-Mich) today will be essential, and will have a strong impact if there is a significant deviation from the consensus.

In the meantime, traders' attention is focused on the exchanges between a tired Biden and the Republican leaders in Congress, in an attempt to reach an agreement on the debt ceiling, a sine qua non condition for avoiding a new shutdown. This term, which means closure in good French, designates a period of closure of certain federal public services in the absence of an agreement in Congress on the budget.

Right now, the EUR/USD is trading at $1.0917.

KEY CHART ELEMENTS
The identified and fully validated exit from the ascending channel is accompanied by a triple top structure, which supports our bearish scenario for the leading currency pair. We are now monitoring the relative dynamics of the moving averages, keeping in mind that the price/ROI divergence has already sent a bearish message.

MEDIUM-TERM FORECAST
Given the key chart factors we have mentioned, our medium-term view on the EUR/USD is negative.

Our entry point is $1.0930. The price target of our bearish scenario is $1.0701. In order to preserve the capital invested, we advise you to place a protective stop at $1.1011.

The expected return on this forex strategy is 229 pips and the risk of loss is 81 pips.