EUR/USD: the euro is melting towards parity

The bearish bias of the currency pair was confirmed at the turn of the week, in the wake of a very important meeting on Friday.

This meeting is the NFP. Behind this acronym hides the report on private employment (excluding agriculture) in the United States, the Non-Farm Payrolls. This monthly barometer of employment tensions is particularly scrutinized by the Fed, in the sense that it can read advanced signs of inflation. Employment, insolently resilient across the Atlantic, is in such health that it pushes the Federal Reserve to act with the greatest restraint on the rate cut lever.

And it must be noted that the content of the December report is very, very solid. First of all, the unemployment rate, expected to be stable at 4.1% of the working population, has the luxury of falling to 4%, very close to full employment. Job creations in the private sector (excluding agriculture), expected at 164,000, came out at 256,000, very much above the target. Finally, and this is the positive point to remember, the moderation of the increase in salaries, by +0.2%, in line with analysts' expectations.

The 10-year Treasuries, yields on US Treasury bonds maturing in 10 years, warmed up in the wake to around 4.8%.

"The current figures indicate that there will probably be no further interest rate cuts in January, while markets are now only expecting further cuts in the second half of the year. It remains to be seen whether the continued robustness in labor demand is due to the post-election euphoria. But if this robustness continues, it certainly argues in favor of the US Federal Reserve keeping interest rates at a higher level for a little longer than was expected a few months ago," according to Christian Scherrmann, US economist at DWS.

According to the CME Group's Fedwatch tool, investors are only expecting a cut in key rates of a quarter of a percentage point (or 25 basis points) in 2025. UBS believes that the central bank still has room to lower its key rates by a total of 50 basis points this year.

In the context of a Fed "forced" to be patient, currency traders will closely monitor the publication of the consumer price index, the main measure of inflation, in the United States, on Wednesday. Another leading barometer of American inflation, producer prices will be published tomorrow. In the meantime, nothing to get your teeth into on the economic statistics side this Monday, regardless of the side of the Atlantic.

Right now, the EUR/USD is trading at $1.0217.

KEY CHART ELEMENTS
The reaction movement carried out at the beginning of the month, encouraged by press information denied by D Trump, is already running out of steam.

This surge is not likely to thwart the underlying bearish bias, but sends a legitimate message of protest. The 50-day moving average (in orange) continues to constitute a solid technical and graphic barrier.

Once perfect parity is reached - $1 = 1euro - a vigorous buying reaction of contestation could take place.

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 $1.0210. 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 $1.0296.

The expected profitability of this Forex strategy is 209 pips and the risk of loss is 86 pips.