EUR/USD: A one-year low has been hit!

Despite Eurozone PMI activity indicators landing right on target, the market continues to favour the dollar in the short term; losses on the EUR/USD have accelerated following the first FOMC meeting led by Kevin Warsh. While stopping short of a hawkish stance, the powerful central bank demonstrated its firm resolve to combat any resurgence of inflation last week.

"Monetary policy is now entirely dependent on upcoming inflation figures, marking a return to a no-nonsense communication style. The Fed is asking markets to stop parsing its words for clues and instead focus solely on inflation data and the findings of ongoing working groups - covering the Fed's balance sheet, data, communication, productivity, employment, and the inflation-fighting framework - which form the new pillar of Kevin Warsh's strategy," observes Joffrey Ouafqa, Head of Asset Management at Auris Gestion.

As widely anticipated, the first monetary policy meeting under Warsh's leadership resulted in no change to the cost of borrowing in dollars. However, the prospect of a policy pivot is receding, raising the possibility - should Middle East tensions persist - of just a single federal rate hike before year-end. This was the key monetary event of the past week, accompanied by a related development: the flattening of the yield curve, specifically a narrowing of the spread between 2-year and 10-year Treasury yields. "By appointing a maverick to head the Fed, Trump is turning the page on Powell. Yet he is also choosing a figure with strong convictions - someone just as willing to shake up the status quo. In an environment where expectations of rate hikes are mounting - even as the White House would prefer monetary easing - the stage is set for a potential clash," observes Alexis Bienvenu, Fund Manager at La Financiere de l'Echiquier.

"During Trump's first term, the honeymoon period with the Fed barely lasted 5 months. With a decidedly more uncompromising Fed Chair, how long will the 'grace period' last this time?"

Against this backdrop, the Personal Consumption Expenditures (PCE) price data due out on Thursday will be closely watched. It is worth noting that the Fed prefers this metric over the CPI when assessing inflation. The figures are expected to show a 0.3% month-on-month rise.

As for the PMI activity indicators released for the Eurozone, the preliminary June estimates show the manufacturing index above the 50-point mark at 51.2, while the services index sits below it at 49. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, comments on the latest Flash PMI survey figures: "The Eurozone economy is currently showing enough resilience to narrowly avoid slipping into recession. The June Flash PMI indicates only a slight decline in overall Eurozone private sector activity compared to May; this trend suggests that the single-currency area's GDP will remain stable in the second quarter compared to the first. The contraction recently observed in the services sector is showing encouraging signs of easing in June. Notably, the tourism and leisure sector is reporting a rebound in demand following the initial disruptions linked to the war in the Middle East."

"Encouragingly, falling energy prices are already feeding through to businesses: rates of cost and selling price inflation eased in June, a trend suggesting that prices may now have peaked."

Right now, the EUR/USD is trading at $1.1340.

KEY TECHNICAL FACTORS
The pullback (technical rejection) identified in our previous analyses - occurring at a zone where resistance levels converged (a horizontal level at $1.1610 and the 20-day moving average) -was followed by a release of intense selling pressure. The target of $1.1203 remains in place. The spot rate is currently breaking below annual lows ($1.1408).

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

Our entry point is $1.1390. The price target for our bearish scenario is $1.1203. To protect the invested capital, we recommend placing a protective stop at $1.1491.

The expected return for this strategy is 187 pips, and the risk of loss is 101 pips.