EUR/USD: A major technical event

The release of the Non-Farm Payrolls (NFP) report on the health of the US private sector on Friday afternoon triggered a rebound in the dollar against a euro weakened by the geopolitical impasse in the Middle East, contributing to a stabilisation of crude oil prices at a high level. This further complicates the monetary policy equations of central banks on both sides of the Atlantic, albeit for different reasons.

Regarding the NFP itself, the unemployment rate (4.2%) and the increase in average hourly wages (0.3%) held no surprises, aligning with their respective consensus estimates. However, the number of new jobs created in the non-farm private sector (173,000) far exceeded expectations.

"Once again, better-than-expected US employment figures, amid runaway inflation, are fueling expectations of a Federal Reserve rate hike before the end of the year. However, job creation is lacking in momentum and wage growth is slowing, meaning household finances are under increasing pressure," say ING economists.

"This report is good news for the US economy, but it will leave no room for the new Fed chairman, Kevin Warsh, to venture into the rhetoric of rate cuts, even though overall inflation in the US has risen to 3.7%, due in particular to tensions related to the war in Iran. This is the highest inflation in the United States in three years," analyses Alex Baradez for IG France, who notes that "before the jobs report, the probability of the Fed maintaining its interest rate range by the end of the year was 50% (and the other 50% for a rate hike). But after the report, the probability of the Fed maintaining its interest rates has fallen to 30%, and therefore there's a 70% chance that the Fed will raise its rate range by December!"

The CME Group's FedWatch tool now puts the probability of a 25 basis point Fed Funds rate hike at nearly 16% for the July meeting. A status quo is still widely expected for the June FOMC meeting, which concludes on the 16th. Meanwhile, this week, currency traders will be watching the US consumer price index on Wednesday, ahead of Thursday's meeting of the ECB Governing Council. This meeting will be impacted by a forced response to rising inflation driven by energy prices, even as economic activity is under pressure and growth is slowing.

Martin Wolburg, senior economist at Generali Investments, puts the stakes of the meeting into perspective: At its meeting on June 11, the ECB is very likely to raise its key interest rates by 25 basis points, in line with its recent restrictive rhetoric. Beyond that, the outlook for monetary policy is darkening, as the Governing Council must find a balance between persistently high inflation and slowing economic activity. Inflation is spreading, inflation expectations have risen slightly, and falling real interest rates argue in favor of maintaining a restrictive stance. At the same time, growth is slowing, credit conditions have tightened, and signs of widespread second-round wage effects remain limited. Moreover, monetary policy cannot address the root causes of a supply shock. The rate hike in June would therefore primarily serve to preserve the ECB's credibility in the fight against inflation and to anchor expectations. But while hopes As the prospects for a peace agreement in the conflict with Iran diminish again and the risks of stagflation remain high, President Lagarde will likely want to leave the door open for further tightening if necessary.

Published this morning, the Sentix Eurozone investor confidence index came in close to expectations, significantly in negative territory at -13.3.

Right now, the EUR/USD is trading at $1.1542.

KEY TECHNICAL ELEMENTS
The intermediate support level at $1.160, which acted as a safeguard, was broken on Friday amid very high volatility, lending credence to our bearish scenario towards $1.1202.

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

Our entry point is $1.1500. The price target for our bearish scenario is $1.1203. To protect your capital, we advise placing a stop-loss order at $1.1609.

The expected profit for this Forex strategy is 297 pips, and the potential loss is 109 pips.