EUR/USD: The FED and ECB are taking different paths

Market psychology remained unchanged on the flagship currency pair: the chronic decline of the EUR/USD continues to be explained by an anticipated increase in the wage differential between the two currencies, with the Fed being in some way "forced" to be patient, unlike its European counterpart. The latest report on American employment, of excellent quality, further supported this working basis.

As a reminder, 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 165,000, came out at 255,000, very much above the target. Finally, and this is the positive point to remember, the moderation of wage increases, by +0.3%, 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 4.80%.

"Current figures indicate that there will probably be no further interest rate cuts in January, while markets now only expect 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," says Christian Scherrmann, US economist at DWS.

"Be careful, however, not to focus on a single employment report, as recalled by Austan Goolsbee, the president of the Chicago Fed, since revisions for over a year have been fairly systematically downward-oriented," Thomas Giudici, head of bond management at Auris Gestion, was keen to put things into perspective.

Other major meetings on producer prices, retail prices and consumption are awaited with interest this week, because together they constitute essential elements of reflection for the Federal Reserve in the construction of its monetary policy.

Cesar Perez Ruiz, Chief Investment Officer and CIO at Pictet Wealth Management sums up: "Ahead of Trump's inauguration on 20 January, this week we will be monitoring the CPI [consumer price index] and retail sales in the US, where recent signs of overheating in the labour market will prompt the Fed to take a break in January. The ECB is expected to lower its rates at each of its meetings until July 2025, while the SNB could ease its policy by 25bp in March and June."

On the macroeconomic agenda today, to follow in priority: the producer prices in the US at 14:30 (EU time). This leading indicator of inflation will be followed tomorrow by consumer prices, the statistical highlight of the week. The impact of these statistics could be significant on the bond market, and by extension on currencies.

Right now, the EUR/USD is trading at $1.0257.

KEY CHART ELEMENTS
The reaction movement 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 = one euro - an energetic buying reaction of protest 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 $1.0259. The price target of our bearish scenario is at $1.0001. To preserve the invested capital, we advise you to position a protective stop at $1.0361.

The expected profitability of this forex strategy is 258 pips and the risk of loss is 102 pips.