EUR/USD: the euro is in a position of strength

The Euro, a final barometer measuring financial markets' risk appetite, continued to gain ground against the Dollar, amid hopes for international trade and the geopolitical situation in the Middle East. On the latter point, a ceasefire was agreed between Iran and Israel in the Middle East on Tuesday. "Markets can breathe more freely, but let's not confuse a tactical pause with a strategic resolution," warns Stephen Innes of Spi AM.

"Despite weekend fears following the American bombings, we have seen a rapid and massive de-escalation of tensions in the Middle East. A limited Iranian response, without impact on energy facilities, and US pressure have opened the door to a truce between Israel and Iran," highlights Xavier Chapard, strategist at LBPAM.

"While risks persist (respect for the ceasefire, real state of Iranian nuclear facilities...), this de-escalation is favourable for the global economy," he adds.

Admittedly, uncertainty remains over customs duties as the 9 July deadline approaches, from which US imports into the EU will be surcharged. But this date could, however, be postponed, according to Karoline Leavitt, the White House spokeswoman.

In parallel, the greenback is suffering from the increasingly clear prospect of an upcoming federal rate cut, even if J Powell, the head of the Fed, is playing for time by relying on the flourishing health of the job market and the still difficult-to-quantify inflationary consequences of the trade war. As a reminder, in Q1, US GDP fell by 0.5%, much more heavily than previous estimates suggested.

This afternoon, today's US figures will provide further indications for or against a monetary easing of the dollar.

Particularly to watch, at 14:30 (EU time), is the dynamic of PCE (personal consumption expenditures) prices. "These prices] are the most closely watched by members of the Federal Reserve, they are the ones used in the institution's quarterly projections and serve, among other indicators, for adjusting the level of the rate range," says Alexandre Barade (IG France).

"The publication of these figures comes in a particularly tense context between Donald Trump, several members of his administration, and Jerome Powell." This week has been an opportunity for a new round of criticism from the US executive (or rather from Donald Trump himself) on the head of the Fed, whom he nicknames Jerome "Too Late" Powell.

Donald Trump rejoiced at his departure next May because he "finds him quite terrible." The White House occupant also indicated that he had three to four people in mind to succeed him... "Donald Trump once again, on Wednesday afternoon, called Jerome Powell a 'very stupid person' with a 'low IQ'..."

And this while the Fed chief completed his two-day hearing before Congress in the middle of the week. During this traditional semi-annual hearing, J Powell temporized, highlighting the robustness of employment and the potential inflationary consequences of the White House's customs policy.

"True to his current mantra, Jerome Powell persists in his stance of strategic patience. Faced with inflation still deemed too uncertain, the difficult-to-quantify impact of customs duties, a globally resilient economy, and a labour market far from collapse, the President of the American institution sees no reason to change monetary policy and especially does not want to react prematurely," notes Thomas Giudici, head of bond management at Auris Gestion.

The asset management decision-maker notes "however that if the labour market outwardly maintains an appearance of full employment, it nevertheless shows some signs of fragility, particularly through the slowdown in job creation or the increase in benefit claims. Above all, the decline in the participation rate, which Jerome Powell was careful not to explicitly state but which is largely influenced by the marked decline in immigration, could artificially contribute to keeping the unemployment rate low."

"Thus, while FOMC members unanimously voted in favour of the status quo (maintaining key interest rates in the 4.25% - 4.5% range) and still anticipate two rate cuts by the end of the year, their forecasts are becoming increasingly dispersed given the uncertainty of macroeconomic scenarios: ten members predict two or more rate cuts this year, while nine see one or less."

To follow at 16:00 is the US consumer confidence index (University of Michigan). As a reminder, the household confidence index (Conference Board) published earlier in the week fell to 92 points, missing expectations.

Right now, the EUR/USD is trading at $1.1728.

KEY GRAPHICAL ELEMENTS
The technical straitjacket breakout is confirmed, giving more meaning to the support found on the 20-day moving average (dark blue).
The buying position on the spot can be maintained as long as the oscillations build between this trend curve and the upper bound of the Bollinger Bands (20; 2.5).

MEDIUM-TERM FORECAST
In view of the key graphical factors we have mentioned, our medium-term opinion on the EUR/USD is positive.
Our entry point is at $1.1718. The price target for our bullish scenario is $1.2213. To preserve the capital invested, we advise you to place a protective stop at $1.1519.
The expected profitability of this forex strategy is 495 pips and the risk of loss is established at 199 pips.