EUR/USD: what's new with the pair?

The day after the Fed's first FOMC, and in the run-up to the first ECB Governing Council of the year, market psychology remained the same on the EUR/USD pair, largely favourable to the second component, to the great displeasure of Trump, who will undoubtedly increase his pressure on Powell for monetary easing. However, the strength of employment, the inflationary programme of the new president and, more generally, the insolent resilience of the world's leading economy argues at the very least for a monetary pause.

This is, moreover - it was very widely expected - what the Federal Reserve chose yesterday by maintaining unchanged the remuneration of its Fed Funds. "In the US [...], the economy continues to grow and Donald Trump's plans to ease fiscal policy, impose high tariffs and severely limit immigration are likely to have an inflationary effect. While the ECB is slowly moving towards the final stages of its monetary easing, the Fed has already crossed the finish line," says Dr. Felix Schmidt, Senior Economist at Berenberg.

The ECB is following in the footsteps of the Fed this Thursday, and the near-concomitance of these two monetary events will provide an opportunity to assess the dichotomy between the two strategies. "The ECB is likely to make a further rate cut at the January 30 meeting, thus accentuating the decorrelation with American policy," adds Emmanuel Auboyneau, Managing Partner at Amplegest. "The sluggish growth in Europe and largely controlled inflation justify a more conciliatory monetary policy. Christine Lagarde should, however, adopt a cautious tone, in line with her previous statements. The ECB's lack of audacity seems indeed to be written into the institution's DNA."

Patrick Barbe, Head of Investment Grade Fixed Income in Europe at Neuberger Berman, expects "the ECB to provide more information on its confidence that inflation in the euro area will fall back towards 2% by mid-year. We would like to know its point of view on the divergence of the core inflation rate between Germany (stable at 4% year-on-year in the services sector), France (at its target) and Italy (below its target) and what its update is on the outlook for household consumption, given that households have saved a large part of their wage increases in an uncertain context and a rise in unemployment in Northern Europe."

Reminder of the appointments not to be missed: the monetary policy decision itself at 14:15 (EU time) and especially the Institution's press conference at 14:45. Also to be followed, on the macroeconomic front this time, the weekly registrations for unemployment benefits at 14:30. Published in the morning, the unemployment rate in the Eurozone remained unchanged, at 6.2% of the active population; on the other hand, the German GDP for Q4 fell (-0.2%) more than anticipated (-0.1%).

Right now, the EUR/USD is trading at $1.0396.

KEY CHART ELEMENTS
The 50-day moving average (in orange) continues to constitute a solid technical and graphic barrier. In the shorter term, it is even its 20-day counterpart (in dark blue) that acts as dynamic resistance. And this without the RSI oscillator positioning itself in the oversold zone. In the immediate future, the currency pair is tracing, in the upper part of the Bollinger bands, a negative harami structure. Once perfect parity is reached (1$ = 1 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 $1.0402. 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 $1.0609.

The expected profitability of this Forex strategy is 401 pips and the risk of loss is 207 pips.