EUR/USD: A historic ECB Governing Council meeting?

The EUR/USD was balanced as the outcome of an ECB Governing Council approaches. A historic meeting in the sense that it should mark the start of the process of easing credit conditions, through direct action on rates. Also historic because if necessary, it would be the first time that the ECB would be ahead of the Fed...

A drop of 25 basis points is almost certain, but operators will be particularly sensitive to any element allowing to confirm or refute the scenario of a long pause after this first drop. The ECB's new economic projections, as well as the subsequent press conference, will be crucial meetings.

For Patrick Barbe, head of investment grade bond investing in Europe at Neuberger Berman, "the evolution of salary increases constitutes the most relevant criterion for its future rate policy. The first quarter figure recorded a new increase of +4.8% year-on-year, well above its 3% limit, driven mainly by Germany This is clearly a problem, but the new leading indicators point to more negotiated wage increases. low, which means that the ECB can start to reduce its key rates, but should remain cautious depending on the data."

In the US the week is dedicated to employment.

The survey by the private firm ADP (Automatic Data Processing) yesterday highlighted job creation in the private sector (151,500) significantly lower than expected, and down significantly from April to May. Enough to bring a little relief before the publication this Thursday of weekly registrations for unemployment benefits and Friday of the federal NFP (Non Farm Payrolls) report. Because this week is definitely placed under the sign of employment, a huge statistical issue. Any sign of easing tensions on the employment front militates for less pressure on wages, and therefore prices...

Already on Tuesday, new job offers (JOLTS) came out below expectations, allowing Wall Street to close, albeit narrowly, in the green.

Reminder of the main meetings regarding the ECB: a monetary policy decision, verdict on rates and updated economic projections THIS AFTERNOON (EU time).

KEY CHART ELEMENTS
The currency pair recorded a double top at $1.0885 which further asserts itself as a resistance level, below which the bearish bias can regain its rights. Especially in the event of rapid reintegration of the lower part to an oblique (drawn in black), a major graphic reference point. In the immediate future, the Bollinger bands are tightening, suggesting an increase in volatility.

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

Our entry point is at $1.0881. The price target for our bearish scenario is at $1.0551. To preserve the invested capital, we advise you to position a protective stop at $1.0971.

The expected profitability of this forex strategy is 330 pips and the risk of loss is 90 pips.