EUR/USD: the trend is your friend

Above $1.1675, franched in the second half of last week, the EUR/USD continued its ascent, 'the reversal of the green note transla[ting] confusion in transatlantic economic policy implementation", according to the synthetic words of Philippe Waechter, Director of Economic Research at Ostrum Asset Management.

"The uncertainty generates a form of investor hesitation that no longer mechanically follows interest rate arbitrage. The unpredictability of White House decisions and the lack of long-term clarity of economic policy repulse investors."

The prospect of an imminent decline in federal rates, fed punctually by half-century US statistics, also participates in the flagship currency pair's trend. And that's even if J Powell, the Fed boss, has "a master word: waiting. He thus referred to the door opened by two FOMC members, Christopher Waller and Michelle Bowman, who pleaded for a rate cut as early as the July meeting. Recalling that the Fed "didn't have to be pressed," Jerome Powell maintains that it is first necessary to assess the inflationary impact of customs duties before acting," says Thomas Giudici, head of obligation management at Auris Management.

But the market starts to "price" a monetary easing. According to the CME Group's FedWatch tool, the odds of a Fed Funds decline by the end of September now exceed 85%.

Statistics on employment, rolled out throughout the week, allow us to hone this probability. Note that the NFP (Non Farm Payrolls) report will exceptionally be published on Thursday, 4 July being naturally unemployed across the Atlantic: it is the sacro-holy day of Independence. Yesterday the new job offers (JOLTS) sent positive signals, ahead of the publication at 2.15pm of the survey by the private firm ADP.

Yesterday on the statistical side of this side of the Atlantic, inflation in the euro area is overall springing in phase with expectations, with prices rising 2% on a year in June after 1.9% in May. "The slight increase in total inflation in June was expected, but underlying inflation remains stable for its part," notes CPR AM's Juliette Cohen.

The increase is 2.4% if you remove from the basket energy, food, alcohol and tobacco, the most volatile items.

"The European Central Bank's mission is overall accomplished and a pause can now be envisaged unless additional trade tensions between Europe and the US materialize in the coming weeks," the asset management decision maker continued.

Right now, the EUR/USD is trading at $1.1760.

KEY CHART ELEMENTS
The technical camisole release is confirmed, giving meaningful advantage to support over the 20-day moving average (in dark blue).

The buying position on the spot could be maintained as long as oscillations build between this trend curve and the upper end of the Bollinger bands (20;2,5).

The relative strength index (RSI) is in full convergence with the courses.

MEDIUM TERM FORECAST
In view of the aforementioned key chart factors, our outlook is positive medium term on the EUR/USD.

Our entry point is at $1.1770. The course target of our bullish scenario stands at $1.2213. To preserve the capital committed, we recommend positioning a protective stop at $1.1673.

The expected profitability of this Forex strategy is 443 pips and the risk of loss stands at 97 pips.