EUR/USD: The central banks don't want to ease up on the pressure yet

Euro and Dollar are neutralising each other today, in full turmoil on the side of the bond markets, the forex traders betting massively on a continuation of a restrictive monetary policy. Under these conditions, the contraction of risk appetite becomes the main matrix of the market.

Market which "suffers from a double negative effect. For several days, the economic indicators have not been good, in Europe or Asia, as we saw again on Wednesday with the PMI Services. And moreover, the equity indices are penalised by the restrictive speeches of intent of the central banks which we already know (for the Fed, the American Federal Reserve, and the European Central Bank, the ECB) that they will certainly raise their rates in July, and the doubt about a second consecutive increase, a doubt which will last until September”, develops Alexandre Baradez, head of market research at IG France.

The Fed Minutes, the traditional chronological account of the debates that animated the last FOMC meeting, only reinforced traders in this idea. As proof, according to the CME's FedWatch tool, the odds of a 25 basis point hike after the June break now exceed 89%. "If the scenario of a new rate hike by the Fed at the end of July still holds the rope, [...] with a voluntary Jerome Powell during his last declarations, [Thomas Giudici, at Auris Gestion] consider[e] nevertheless that a new break is always likely".

It is in this thorny context that currency traders will welcome the results of tomorrow's NFP report (for Non Farm Payrolls), the federal monthly report on private employment for June. Any indication showing an additional heating of the employment market across the Atlantic, already under great tension in certain sectors, will have a mechanical effect on the expectations of the Fed Funds curve.

Right now, the EUR/USD is trading at $1.0866.

KEY GRAPHIC ELEMENTS

The EUR/USD now sees its 20-day moving average (dark blue) cut upwards against its 50-day counterpart (orange), which requires us, according to the established trading plan, to cut our positions short, waiting for suitable signals. The form of congestion observed since 16 June 16 frankness, remains poor in lessons.

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 $1.0784 and the resistance at $1.1000.