EUR/USD: Inflation's no longer galloping wildly, but isn't under control yet

The EUR/USD was "consolidating" near a bullish 20-day moving average, with the confirmation, last week, of a now marked decline in inflation, on both sides of the Atlantic. The slowdown in price dynamics was particularly surprising in the Eurozone, to the point of putting pressure on the ECB regarding the timetable for starting the rate cut.

?Combined with certain comments from the Fed (Waller) and the ECB (Villeroy), this has increased pressure on global rate forecasts, with markets now assessing the chances of a relaxation of monetary policy at more than 50%. the ECB by March 2024", say Nomura strategists in their weekly note on Europe. They believe, however, "that the first decline will come six months later, but [recognize] that recent inflation results increase the risk of earlier movements."

As a reminder, on Thursday, the dynamic of slowing inflation emerged even more significant than expected. Excluding food, energy, alcohol and tobacco (elements considered volatile), prices increased at an annualised rate of 3.7% in November, compared to a target of 4% and a month of October of 4.1%! A very significant slowdown which should bring a little flexibility to the ECB's monetary policy. In the US, the PCE (Personal Consumption Expenditures), the preferred gauge of the American Federal Reserve (Fed) to measure inflation, increased by 3% over one year in November, compared to 3.5% last month. The "core" index, excluding energy and food prices, increased by 3.6%, a figure in line with the consensus of economists surveyed by the Wall Street Journal.

Friday, during a round table at Spelman College in Atlanta, Powell reminds us that the road to achieving inflation targets is still long. ?The response was clear, it was a ?semi-hawk? Fed president who spoke, leaving no room for complacency. He says that inflation was moving in the right direction but that it was still well above the target and that "core" inflation (excluding food and energy) was still too high", explains Alexandre Baradez for IG France.

?Like other members of the Fed, Jerome Powell clearly stated that ?the Fed will raise rates further if necessary?, believing that it was ?premature to say that monetary policy is sufficiently restrictive?. He says that labour market conditions were "very strong" even if they had relaxed a little."

We will also be following with the greatest attention the figures on American employment which will mark the statistical agenda of the week: the new JOLTS job offers, the weekly registrations for unemployment benefits, the ADP firm survey, and culminating in the monthly NFP report on Friday (Non Farm Payrolls).

Right now, the EUR/USD is trading at $1.0817.

KEY CHART ELEMENTS
After a bullish runaway characterised by the school marubozu candle on 14 November, followed by a very short consolidation and an early bullish extension, a technical adjustment is underway, an adjustment catalysed by the statistical publications of 30 November. The view is neutral in close proximity to the 20-day moving average (dark blue).

MEDIUM TERM FORECAST
Considering the key graphical 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 EUR/USD prices are positioned between support at $1.0822 and resistance at $1.1012.