EUR/USD: Traders are focused on US consumer prices

The euro was already stabilising after a short technical rebound yesterday against the dollar, towards $1.0770, while traders are nervously wondering about the relative trajectories of the yield curves in Europe and the United States, after the rise surprised by the Bank of Australia and the Bank of Canada by 25 bps of their cost of money.

The Fed and the ECB will complete next week, June 14 and 15, an FOMC meeting and a Board of Governors meeting. A firm tone is expected from the two great fundraisers. Important point to remember, the probabilities of seeing a status quo on Fed Funds have completely reversed in recent days in favor of a 25 bp hike, in particular due to persistent inflation, maintained by chronic tensions in the labour market.

“Certainly, elements plead for a break in June” says, Will Gerlach, Regional Director France and UK at iBanFirst. “Major indicators and proxy data (notably the Chicago PMI manufacturing index) confirm that the risk of recession is growing significantly. But on the other side of the spectrum, the latest employment figures indicate that a tightening could be necessary to ensure that inflationary pressures do not reappear."

The consumer price indices in the United States will be published next week, on the eve of the verdict on the Fed Funds.

M Gerlach favours "the following scenario: an increase [of the Fed Funds] in June and July before taking a break. On the ECB side, "while inflation remains the main concern, the ECB has every reason to increase the interest rate of 25 basis points next week."

In terms of economic statistics, currency traders learned of a stronger than expected increase in weekly registrations for unemployment benefits, to 262k new units. Earlier in the day, traders took note of a 0.1%  GDP contraction in the euro zone in the first quarter, against an increase of 0.1% in the first estimate.

Right now, the pair is trading at $1.0777.

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 $1.0763. 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 $1.0861.

The expected return of this strategy is 327 pips and the risk of loss is 98 pips.