EUR/USD: the euro is taking the elevator downward

The EUR/USD remains under strong pressure since the election of Donald Trump to the Presidency of the United States, due to the expansionist nature of his program, considered inflationary by many operators. Already in turmoil, the American 10-year experienced a sharp acceleration in the wake of the announcement of the result of the presidential election. After a peak at 4.45% last week, the sovereign bond is taking a breather at 4.35% this morning.

"A more flexible fiscal policy, stronger economic growth and higher consumer prices in the event of significant customs duties would probably force the American Federal Reserve (Fed) to limit the easing of its monetary policy compared to initial forecasts", warns Dr. Felix Schmidt - senior economist and Dr. Holger Schmieding - chief economist at Berenberg. "It would therefore be possible that the Fed would only lower its key rate twice in total this quarter and next quarter, instead of four, by 25 basis points each time. In this case, the range of key rates at the end of the easing cycle would be 4.25% to 4.5% instead of the 3.75% to 4.0% currently planned."

The Fed, in fact, was finishing a new meeting of the Monetary Policy Committee last week, with the name of the next President of the United States in mind and certainly. The Federal Reserve led by J Powell decided, unsurprisingly, to lower the yields of its Fed Funds by 25 basis points.

"Inflation expectations and, in particular, real yields have increased since the Fed began to lower its rates in September," commented William Zox, Portfolio Manager, Brandywine Global (a subsidiary of Franklin Templeton). "I don't think the Fed will cut rates in December or January, but it will be up to the Treasury market to send that message to the Fed, rather than the other way around."

Indeed, "Trump's potentially expansionary economic policy could prompt the Fed to adopt an even more restrictive stance to counter inflation," agrees Andrea Tueni, Head of Sales Trading at Saxo Banque France. Because if inflation expectations are likely to be revised upwards, it is the anticipation of the trajectory of rates that is mechanically modified.

As for the Euro, it suffered from fears on the trade and customs fronts on the one hand, and geopolitical on the other hand, while the United States is still formally chaired by J Biden, but Trump's diplomatic teams are talking to their future counterparts.

Against this backdrop, traders cast an anxious eye on the ZEW index of confidence in the German economy, which fell to 7.3, far from expectations (13.3). "The score for economic expectations for Germany was overshadowed by Trump's victory and the collapse of the German government coalition," comments President Professor Achim Wambach.

"In the current survey, economic sentiment has deteriorated ? and the result of the US presidential election is probably the main reason for this. The fact that economic expectations for the USA are clearly rising, while economic sentiment for China and the eurozone is falling, supports this view. However, more optimistic voices have emerged in the last few survey days, expecting an improvement in Germany's economic outlook in the run-up to early elections. Overall, we are currently seeing a very volatile development of sentiment."

In terms of statistics, there was nothing to get your teeth into yesterday, Monday, at the dawn of a week that was nevertheless rich in this area. Traders will be able to see consumer prices in the United States tomorrow, as well as retail sales on Friday.

Right now, the EUR/USD is trading at $1.0628.

KEY CHART ELEMENTS
The currency pair has just broken out of a wedge pattern, amid intense volatility, which confirms the bearish bias, which is now fundamental. Negative opinion maintained.

MEDIUM-TERM FORECAST
In view of the key graphic factors that we have mentioned, our opinion is negative in the medium term on the EUR/USD.

Our entry point is at $1.0618. The price target for our bearish scenario is at $1.0239. To preserve the capital invested, we advise you to position a protective stop at $1.0726.

The expected return on this strategy is 379 pips and the risk of loss is 108 pips.