EUR/USD: Powell hammers the pair

The dollar has strengthened particularly against the euro, so the EUR/USD fell sharply yesterday, in the wake of the outcome of the last FOMC of the year, which was rather firm in tone. While the powerful monetary institution has unsurprisingly lowered the remuneration of its Fed Funds by 25 basis points, it has adopted a rather offensive tone, in particular due to the still chronic tensions on the employment market.

The Fed published, as it does every quarter, a document eagerly awaited by the markets: the famous dot plots. This dot plot shows that the median anticipation of Fed members for 2025 only incorporates 50 basis points (0.5 percentage points) of reductions in key rates. However, in the previous dot plots in September, members anticipated a rate cut of 100 basis points over 2025.

In this context, tomorrow's publication of the statistical highlight of the week, PCE prices, will be crucial. As a reminder, this is the Fed's preferred measure in its assessment of price dynamics.

"During the press conference, Chairman Powell said that the decision had been difficult to decide and mentioned that inflation seemed to be stagnating," notes Christian Scherrmann, Chief US Economist at DWS. "This could well indicate that a further halt in the disinflation process could lead the Fed to keep rates unchanged. Furthermore, Powell cited political uncertainties as a reason why some central bankers are less confident in the continued moderation of price increases."

Right now, the EUR/USD is trading at exactly $1.04.

KEY CHART ELEMENTS
The tightening of the Bollinger bands has given way to an increase in volatility, confirming or even strengthening the $1.050-50 in their role as major resistance. Below the 20-day moving average (in dark blue), the opinion remains negative on the EUR/USD.

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 $1.0397. The price target of our bearish scenario is at $1.0001. To preserve the capital invested, we advise you to position a protective stop at $1.0496.

The expected profitability of this strategy is 396 pips and the risk of loss is 99 pips.