EUR/USD: A ressurgence of inflationary fears

The EUR/USD remained highly volatile, fueled by hopes for a swift resolution to the US-Iran conflict, but in a still tense environment regarding interest rates and commodities, particularly oil. The price of WTI crude, the West Texas Intermediate (WTI) benchmark, remained close to $90 a barrel, keeping alive fears of renewed inflation on both sides of the Atlantic.

It should be noted that over the past year, the Fed's preferred measure of prices, the PCE index, has accelerated to +3.7%, against a backdrop of chronically high crude oil prices.

On the European side, Nomura economists note that "the latest indicators point to a sharp rise in price and inflation expectations, particularly in the eurozone, and price expectations are also high in Norway [outside the eurozone]. The macroeconomic context suggests that the risk of second-round inflationary effects stemming from the 'inflation expectations-wage demand' channel is higher in the eurozone than in the UK [outside the eurozone]. However, [they] believe these risks are significantly lower than those of 2022-2023."

In addition to PCE prices yesterday, currency traders were able to take note of a series of macroeconomic figures, particularly on economic activity: the US economy grew by 1.5% in the first quarter, less than initially reported, due to lower household consumption and lower-than-expected investment, according to data published Thursday by the Department of Commerce.

This resurgence of inflationary fears is putting pressure on the currency pair, while also working against it in the long run, as the Euro is a sensitive barometer of risk appetite in financial markets.

Right now, the EUR/USD is trading at $1.1677.

KEY TECHNICAL ELEMENTS
From a technical perspective, the euro/dollar pair is now encountering a pivotal zone. After erasing much of its decline related to the acute phase of the conflict, it is trading near the upper limit of its trading range. This configuration reflects a compression of volatility and marked hesitation among market participants, who are currently unable to trigger a sustained upward movement. In the absence of a clear catalyst - whether macroeconomic, monetary, or geopolitical - the pair remains contained below this major resistance ($1.1825), in a wait-and-see phase that could lead to a more directional move once this equilibrium is broken.

The hanging man candlestick pattern of May 11th sent a negative technical signal, which resulted in a downward acceleration in the form of a break below the 200-day moving average (brown line).

A temporary rebalancing of market forces is underway, before a bearish resumption.

MEDIUM-TERM FORECAST
Based on the key technical factors mentioned above, our medium-term outlook for the EUR/USD pair is neutral.

We will maintain this neutral stance as long as the EUR/USD exchange rate remains between the support level at $1.1460 and the resistance level at $1.1765.