EUR/USD: A change in the technical framework

An unbalanced trade agreement, followed by a rather firm tone adopted by J. Powell at the conclusion of the FOMC meeting, fueled a significant decline in the euro against the dollar this week, with the single currency breaking its 50-day moving average (in orange) without any hesitation.

Yesterday marked the end of a new Fed Monetary Policy Committee meeting, which resulted in a status quo on key interest rates - a widely expected outcome. What was less expected, however, was the Fed chief's hawkish tone, which drastically reduces the likelihood of monetary easing at the end of the next meeting in September. Donald Trump will be delighted.

We knew that Powell had been relying for months on the health of consumption and employment to justify his cautious stance, while remaining wary of the potential inflationary consequences of Trump's trade war. But the resolutely offensive tone, even beyond caution, surprised market participants Wednesday evening. This reshuffles the cards from a technical and graphical perspective (see below).

Thus, the prospect of a widening "remuneration" gap between the 2 currencies is strengthening in favour of the USD.

"Jerome Powell insisted on a cautious and data-dependent approach, without providing clear guidance on the future path of rates. He even downplayed the significance of the June economic forecast, which called for two 25-basis-point rate cuts by the end of 2025," notes Alison Boxer of PIMCO.

"The majority of the committee appears to be waiting for clearer signals indicating a deterioration in the labor market or a stabilisation of inflation expectations. Recent data point in this direction, which could ultimately strengthen the likelihood of a rate cut this fall."

Yet the NFP (Non-Family Payrolls) is expected to show robust private sector employment tomorrow, and the very first Q2 GDP estimates (+2.9%) pleasantly surprised yesterday by coming in significantly above the consensus.

This "advance estimate of second-quarter GDP revealed annualised growth of 3.0% for the US economy, following a 0.5% contraction in the first quarter. However, this improvement was driven by a decline in imports, reflecting the volatility of trade flows linked to tariffs."

Furthermore, currency traders continue to digest the details of the trade agreement signed Sunday between Donald Trump and U van der Leyen, head of the EU-27 executive. This agreement reduces the tariffs imposed by the United States on European imports to 15%. Without an agreement, Washington would have imposed 30% tariffs on Europe starting August 1.

This "deal," described by Donald Trump as the "biggest" trade deal ever, includes a number of exceptions, with products subject to zero tariffs from both trading partners, including aircraft equipment, semiconductor equipment, and certain agricultural products. However, alcoholic products are not included, the fate of which is to be decided "in the coming days," said the highly unpopular Ursula von der Leyen.

The text also provides for Europeans to purchase $750 billion worth of energy products from the United States and invest an additional $600 billion in the country.

"Why so many gifts to the Americans?" asks independent economist Veronique Riches-Flores, indignantly. "The EU's trade surplus with the United States has grown disproportionately in recent years," said Commission President and EU negotiator Ms. von der Leyen, who agrees with Trump and thereby forgets that the Americans compensate for a large part of their goods deficits with comfortable surpluses in services.

Right now, the EUR/USD is trading at $1.1412.

KEY CHART ELEMENTS
We were expecting to see the The nature of the move below the 50-day moving average (in orange), a trendline that until now constituted a dynamic area of graphical support, is precisely what we've seen. This is a clear breakout, from 28 to 30 July. The bullish scenario is being called into question at this stage, and we're moving our opinion to "neutral." A pullback to the aforementioned moving average would only confirm this change in technical framework.

MEDIUM-TERM FORECAST
In light of the key graphical factors we've mentioned, our opinion is neutral in the medium term.