EUR/USD: Fragilisation of the $1.07 level

The EUR/USD, in a slight technical rebound, remained bearish as the market began to price in the possibility of a rate hike as early as the June FOMC next week.

"With the Federal Reserve, ECB and Bank of Japan due to meet next week and in view of [other central banks'] rate hikes, bets on a Fed pause next week are off the table. , because there are fears that the Fed will follow suit,” said Mike Hewson of CMC Markets.

Indeed, earlier in the week, the Bank of Australia and then the Bank of Canada both raised their interest rates by 25 basis points amid persistent inflation. It will therefore be essential to analyse any deviations from the consensus on the consumer price indices which will be published next week in the United States, on the eve of the monetary policy decision. The Fed will then not only have the opportunity to clarify its strategy, but also to present an update of its economic forecasts.

A strategy made complex by the concomitance of clear signals of an economic slowdown - ISM Services has cooled the trading rooms - and a still far too marked overheating, particularly in private employment, which has created nearly 335,000 jobs in the private sector (excluding agriculture), exploding the target, according to the latest NFP report in May.

"As for the impact on wages, with a labor market that remains tight, we see that wages have only decelerated very slightly (4.3% year-on-year and 0.3% over the month). All in all, despite their mixed nature, these statistics continue to show a tight labor market, making it impossible to hope for a rapid reduction in inflationary pressures,” says Sebastian Paris Horvitz, Director of Research at LBPAM.

Right now, the EUR/USD is trading at $1.0778.

The full macroeconomic agenda is available here.

KEY GRAPHIC ELEMENTS
The 20-day moving average (in dark blue) has just cut downwards the trajectory of its 50-day counterpart (in orange): the bearish message emerges strengthened. Note the importance of the crossing angle of these trend curves. Next intermediate threshold identified: $1.0550, a breach of which would have consequences in terms of occasional downward acceleration. The short position will be held with discipline as long as the 20-day moving average gravitates below its 50-day counterpart (in orange).

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 $1.0737. The price target of our bearish scenario is at $1.0436. To preserve the invested capital, we advise you to position a protective stop at $1.0821.

The expected return of this strategy is 301 pips and the risk of loss is 84 pips.