EUR/USD: Today is "Fed day"

The EUR/USD lost a few pips on the eve of the FOMC (Fund Policy Committee) meeting. The conclusions of this meeting will be closely watched, both in terms of the monetary policy decisions themselves, the update of the Fed's economic projections, and the press conference. The probability of a 25 basis point cut in the Fed Funds rate is close to 100%. This is because the difference is for a -50 basis point scenario...

The Fed has clearly paved the way for this monetary easing since Jackson Hole, relying on a marked slowdown in the labour market. Since then, inflation figures, for both consumer and producer prices, have never exceeded the consensus, reinforcing the working hypothesis of a renewed downward trend in federal rates.

Harvey Bradley, Fund Manager of the BNY Investments Absolute Return Bond Fund, believes that "the Fed is likely concerned that job creation could turn into job destruction, leading to another round of layoffs and a decline in consumer spending. Supporting the labour market through rate cuts means keeping the economy balanced and preserving the "full employment" portion of its mandate."

The "dot plots," or projections (not forecasts), of Fed members will be closely watched, given the weakness in the labor market. As will the question of the Fed's independence, following President Donald Trump's appointment of one of his economic advisers on Monday 15 September.

The decision and dot plots will be announced at 20:00 today (EU time), and the closing press conference will be at 20:30.

It is therefore not the issue of French public debt that is fueling debates on the currency pair, although "France is adding a little spice to the European calm," but "it is indeed in the US that the main issue is at stake," states Thomas Giudici, Head of Fixed Income at Auris Gestion.

"Two risks nevertheless remain. The first - which encourages us to maintain a cautious stance - would be a more marked than anticipated weakening of the labour market, forcing the Fed to lower its rates not out of comfort but out of necessity, in order to counter a real economic deterioration. The second, on the other hand, would be a resurgence of inflation fueled by too rapid monetary easing in a still resilient economy, which would force the Fed to reverse course sooner than expected."

On the statistical front, there was very good news across the Atlantic regarding retail sales (+0.6% monthly excluding autos), well above the consensus. A reassuring figure following the publication of the Consumer Confidence Index (U-Mich, preliminary data) at the end of last week.

Right now, the EUR/USD is trading at $1.1840.

KEY CHART ELEMENTS
The bearish oblique line drawn in black remains in place, defining the quality of the underlying bullish trend. Following renewed support at this benchmark, the Bollinger Bands are beginning to widen slightly, and we are resuming our upward movement on the currency pair, which has sufficiently consolidated.

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

Our entry point is at $1.1801. The price target for our bullish scenario is $1.2465. To protect your invested capital, we recommend placing a protective stop loss at $1.1599.

The expected return on this strategy is 664 pips and the risk of loss is 202 pips.