EUR/USD: Bearish bias still in effect following ECB meeting

"A fourth consecutive rate cut in 2024 and a rate easing that should continue next year," notes Greg KOUNOWSKI, Investment advisor at Norman K. "Since the US presidential elections and the publication, at the same time, of poor economic indicators in the eurozone, the markets have been calling for a rate cut in order to stimulate the economy of the Old Continent."

The scenario of a 50 basis point cut, which without holding the rope was part of the universe of possibilities, has therefore been ruled out. This probability had in any case clearly "fallen due in particular to moderate statements by members of the ECB, including Isabel Schnabel, indicating that the measures taken by the central bank do not resolve the structural problems. "I would warn against too significant a move, that is to say towards accommodative territory. I don't think it's appropriate in the current perspective" she said a few days ago in an interview with our colleagues at Bloomberg", notes Alexandre Baradez (IG France).

However, Christine Lagarde did not avoid "the risk of increased frictions in global trade", which could "weigh on eurozone growth by reducing exports and weakening the global economy". The ECB has also revised downwards its growth and inflation forecasts from 2024 to 2026.

"As expected, it did not make any commitments on a future monetary policy direction and did not suggest that a new rate cut was planned for January. Given the high degree of political and economic uncertainty, the ECB maintains its reliance on data and its case-by-case approach for each meeting", notes Ulrike Kastens, European economist DWS, who [continues] to think that the ECB is on a rate cut trajectory.

"Although growth forecasts have been revised downwards, the risks to the economy are not yet fully priced into GDP projections. This is expected to be gradually corrected in 2025. We expect another rate cut in January and more to follow. We expect the ECB to bring the deposit rate back to 2% in 2025."

Dovish or not dovish?

"More importantly, in our view, the statement and press conference made it very clear that the monetary stance was still restrictive, with Christine Lagarde (the ECB president, editor's note) stating that there was 'no question about it'," underlines Frederik Ducrozet, Director of Research at Pictet Wealth Management.

"In addition, the wording on inflation and wages was also dovish. High domestic inflation remains a concern, but it was described as the adjustment of 'some sectors' to the past inflationary surge 'with a substantial delay,'" he adds.

The next major monetary meeting: the outcome of the last FOMC of the year on 18 December 2024. Thursday marked the traditional publication of weekly jobless claims, slightly up but not completely missing the target, close to 240,000 new units. Enough to further confirm the probabilities around 75%, according to the CME Group's FedWatch tool, of a 25 basis point cut in the Fed Funds remuneration on 18 December.

Right now, the EUR/USD is trading at $1.0492.

KEY CHART ELEMENTS
The wedge formed since 23 November is coming to an end, and the contained energy is now compressed. A downward exit, consistent with the upward entry in the second half of November in a volatile environment, is anticipated.

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

Our entry point is at $1.0516. The price target of our bearish scenario is at $1.0101. To preserve the capital invested, we advise you to position a protective stop at $1.0661.

The expected profitability of this strategy is 415 pips and the risk of loss is 145 pips.