EUR/USD: Liberation of buying forces on the common currency

The dollar was losing ground after a trade agreement announced between China and the United States, with rare earths as the main issue and tariffs as the lever.

Donald Trump declared the deal with China "done" subject to final approval by him and Xi Jinping, the Chinese president. According to him, this agreement will ensure a steady supply of rare earths to the American economy. "We get a total of 55% tariffs, China 10%," he declared. This appears to correspond to customs duties of 55% on Chinese imports, and conversely, China would apply customs tariffs of 10% on US imports.

These Chinese rare earths are a key issue in the negotiations, with the United States hoping to restore the pace of shipments of these strategic metals, which has slowed since the American president launched his global trade war in early April, AFP explains.

But it's clear that the terms of the agreement, which still needs to be signed by the two heads of state, leave the market cautious. The S&P 500 contracted yesterday by 0.28%, once again close to 6,000 points.

As for US inflation, in the sense of consumer prices, they stand at +2.3% annualised, across the broadest basket of products. This has further fueled the anger of the White House boss, who once again, on his microblogging social network, wrote, "The Fed should cut [rates] by one point at once. We would pay much less interest on future debt maturities. So important!!!" he wrote, still in capital letters on Truth Social.

Forex traders are also digesting the ECB Governing Council meeting, which concluded last week. While the Frankfurt-based central bank unsurprisingly lowered its key interest rate by 25 basis points, the slightly firmer tone adopted by C. Lagarde at the press conference suggests a long pause in the monetary easing process, which is admittedly already well underway on this side of the Atlantic.

"The ECB President displayed unexpected firmness, stating that the institution was 'at the end of a monetary policy cycle.' A clear-cut stance, uncharacteristic of her. As a result, a pause now seems certain at the July meeting, and according to expectations, it will probably take until December to consider a further cut," predicts Roman Ballin, a manager at Auris Gestion. "The ECB therefore remains cautious, and rightly so. The geopolitical climate, particularly trade tensions, complicates the equation. US tariffs, by slowing activity, are rather disinflationary; on the other hand, the expected response from Europe could revive price pressures."

This firm stance immediately plays in favor of the single currency.

Right now, the EUR/USD is trading at $1.1598.

KEY GRAPHICAL ELEMENTS
A notable technical, graphical, and behavioral event this Thursday: the crossing, amid high volatility, of $1.1460, which until then constituted the upper limit (resistance) of a rising triangle. The bullish message is reinforced.

MEDIUM-TERM FORECAST
Based on the key chart factors we have mentioned, our medium-term view is positive on the EUR/USD.

Our entry point is at $1.1602. The price target for our bullish scenario is $1.2464. To protect your invested capital, we recommend placing a protective stop loss at $1.1459.

The expected return on this Forex strategy is 862 pips and the risk of loss is 143 pips.