EUR/USD: A new bearish consolidation wedge

Market psychology remains the same on the EUR/USD, with the greenback being favoured by the offensive tone adopted by the Fed at the end of the last FOMC of the year, and the Euro being penalised by political instability in France and Germany, and by a relatively unresilient economic health.

As a reminder, this meeting of the Fed's Monetary Policy Committee ended unsurprisingly on 19/12 with a 25 basis point cut in the remuneration of the Fed Funds.

But the powerful central bank also published an 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 labor 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 Fed members' median expectation for 2025 incorporates only 50 basis points (0.5 percentage points) of rate cuts. 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 labor 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.

Regarding the economic situation in Europe: "The two main countries (Germany, France) are sinking into political crisis, growth remains close to zero and, despite controlled inflation, the European Central Bank is still excessively cautious. However, we believe that rate cuts, even if they are too slow, will eventually have a positive impact on the economy. The confidence of economic agents in Europe is very low and could recover in the event of political stabilization and a favorable development of the conflict in Ukraine", says Emmanuel Auboyneau, associate manager at Amplegest.

Right now, the EUR/USD is trading at $1.0431.

KEY CHART ELEMENTS
The post-FOMC drop has given way to the formation of a wedge, between the lower limit of the Bollinger bands and the 20-day moving average (in dark blue), an increasingly valuable benchmark.

MEDIUM-TERM FORECAST
In view of 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 $1.0440. 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 $1.0536.

The expected profitability of this forex strategy is 339 pips and the risk of loss is 96 pips.