EUR/USD: PCE figures imminent!

The question that traders are asking themselves this Friday is clear. Will PCE prices, namely the Fed's preferred measure of inflation, go in the direction or not of the rather firm tone that prevailed at the end of two days of meetings of the Monetary Policy Committee on Wednesday evening? Verdict at 14:30 (EU time). Economists are counting on a 3% increase in November over one year excluding energy and food prices. Any overshoot of the target would strengthen the dollar, and therefore weigh on the Euro, especially after the sharp upward revision of US GDP in the 3rd quarter, to +3%.

As a reminder, this meeting of the Fed's Monetary Policy Committee ended unsurprisingly with a 25 basis point cut in the remuneration of Fed Funds.

But the powerful central bank also published the update of its economic projections, highlighting the great strength of the labor market. The Fed suggests that it could only lower rates by 50 basis points cumulatively, over the whole of next year.

The Fed has therefore adopted a rather offensive tone, in particular due to the still chronic tensions on the job market. As it does every quarter, it published a document that is highly anticipated 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 had anticipated a rate cut of 100 basis points over 2025.

"Overall, we are reassured in our view that the Fed will take more time to bring rates back to neutral. However, given the many policy uncertainties ahead, we remain vigilant. Tariffs typically represent a one-off increase in prices that disappears from inflation rates after 12 months. However, some models suggest that they could have negative effects on demand and labor markets. In contrast, our experience is that fiscal stimulus and a reduction in labour supply - perhaps due to lower migration - can indeed put upward pressure on prices. It remains highly uncertain, at least for now, how these competing effects will combine over time," the asset manager said.

Right now, the EUR/USD is trading at $1.0397.

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 flagship currency pair.

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 $1.0391. 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 $1.0501.

The expected return on this forex strategy is 390 pips and the risk of loss is 110 pips.