EUR/USD: relief after publication of EU inflation figures

The USD regained momentum at the turn of the week in the wake of an upward reaction in government bond yields. The 10-year Treasuries returned, around 4.32, to a level which had not been relevant since the end of November. An explanation may come from the very good quality of the latest US macroeconomic reports, on growth and consumer confidence in particular, while inflation is showing signs of resistance.

GDP now reaches an annualized rate of +3.3% for this Q1. Operators also took note of revised consumer confidence index (U-Mich) data on Thursday at 79.3, above expectations. But THE big market event, the publication of the PCE index, the American Federal Reserve's preferred measure for gauging inflation, took place on Friday afternoon. The Paris market was then closed. Without deviation from expectations, the personal consumption expenditures index showed a monthly increase of 0.3%, excluding food and energy.

The Euro, one of the reference barometers of risk appetite on the markets, found a point of support with the publication this morning of the very first estimates of consumer prices. Excluding volatile items (food, energy, alcohol and tobacco), prices increased in March at an annualized rate of 3% compared to 3.1% expected and February at 3.2%. A consistent slowdown in inflation, therefore, on this side of the Atlantic.

Yesterday, traders were able to read the final data on the PMI activity indicators for the month of March. Across the entire eurozone, this industrial PMI reached 46, exceeding the first estimate by 0.5 points.

Not very optimistic, Dr. Cyrus Rubia, Chief Economist at the Hamburg Commercial Bank, comments on the latest results of the survey: "It is discouraging to note that although the HCOB PMI index of manufacturing production in the zone euro has recovered over the last eight months, it still remains in negative territory at the end of the first quarter of 2024. Although it has gradually approached the 50 mark which separates contraction from growth, its progression has however, was hampered by the weak performance of France. Given the current environment, it is not surprising that our nowcasting model, incorporating the latest PMI data, suggests a further recession in the manufacturing sector in the eurozone."

To follow today: ISM services at 16:00 p.m. and a speech by J Powell, the head of the Fed during a Forum.

Two important meetings to realize to what extent the biggest financier on the planet is becoming a little more "centrist" in its monetary strategy.

"The president of the Fed on Friday thus appeared significantly more "centrist", that is to say a little less accommodating than during his speech at a press conference at the last Fed meeting a few days ago" , remarks Alexandre Baradez (IG France). "He frequently recalled the Fed's "data dependence" during his intervention on Friday, a way of reminding us that to trigger rate cuts, inflation figures had to continue to improve, while inflation figures employment are still strong."

Right now, the EUR/USD is trading at $1.0777.

KEY CHART ELEMENTS
While the currency pair regains support on the lower limit of the Bollinger bands (20;2.5) and the 20-day moving average (in dark blue) still gravitates above its 50-day counterpart (in orange ), the opinion remains bullish. We will target the upper Bollibger band, currently in the immediate vicinity of $1.10.

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 $1.0773. The price target for our bullish scenario is at $1.1011. To preserve the invested capital, we advise you to position a protective stop at $1.0649.

The expected profitability of this Forex strategy is 238 pips and the risk of loss is 124 pips.