EUR/USD: the dollar gains a few pips ahead of the FOMC meeting

The EUR, one of the most reliable market barometers for measuring the dynamics of risk appetite, fell back below its 20-day moving average (in dark blue), while currency traders remained on the defensive before today's Fed Monetary Policy Committee meeting. This FOMC will certainly close with a monetary status quo but three very important elements will be scrutinized. The Fed's new economic projections, particularly in terms of growth and inflation, the elements of language used in press conferences, and... the famous dot plots, this dot histogram published each quarter. The mechanism is simple: the 12 voting members, under cover of anonymity, register their feelings regarding the level of Fed Funds for the next deadlines.

"Faced with these inflation figures [CPI and PPI] and according to the CME Group's FedWatch barometer, the probability of a FED rate cut in June rose to around 55% on Friday from 75% last week," remarks Sebastien Grasset, director of AM at Auris Gestion. "The market is now counting on 3 cuts in 2024, in line with the Fed's scenario. Furthermore, Wednesday's Fed meeting should provide us with more precise answers. No change is expected in rates directors (range of 5.25-5.50% maintained) but updating the economic scenario and in particular the "dots plot" (3 so far) of the institution will be essential."

The decoupling of economies between the United States and the Eurozone must be taken into account here by currency operators. "The Fed has no reason to rush," for Christopher Dembik, investment strategy advisor at Pictet AM. "The economy is holding up. Growth should reach 2% in the first quarter. The job market is doing well. Hiring should be stimulated by the public sector due to a later post-covid recovery than in the sector Finally, sustained inflation militates in favour of sustainably high short-term rates."

Elements of response this Wednesday, therefore, at 19:00 (EU time) for the monetary policy decision itself and at 19:30 for the press conference.

Right now, the EUR/USD is trading at $1.0861.

KEY CHART ELEMENTS
Consistent with our previous papers, we build a bullish position, which we maintain as long as the 20-day moving average (in dark blue) gravitates above the 50-day moving average (in orange). The difference between these two curves is small.

MEDIUM TERM FORECAST
Considering the key graphical factors that we have mentioned, our opinion is positive in the medium term on the EUR/USD.

Our entry point is at $1.0842. The price target for our bullish scenario is $1.1143. To preserve the invested capital, we advise you to position a protective stop at $1.0763.

The expected profitability of this strategy is 301 pips and the risk of loss is 79 pips.