EUR/USD: Christopher Waller redistributes the cards

[b]Buying and selling forces for the EUR/USD were in balance on today ahead of the release of the federal employment report at 2:30 PM (Paris time). This report - regardless of Mr. Waller's views - impacts bond yields, particularly if there are significant deviations from consensus forecasts.

The unemployment rate was expected to remain stable at 4% of the labor force. Average hourly earnings in the private sector (excluding agriculture) were projected to rise by 0.3%, with 56,000 jobs expected to be added.

Yesterday, an influential member of the Fed's board triggered a significant easing in the bond market. Comments from New York Federal Reserve President Christopher Waller helped cool tensions regarding sovereign borrowing rates; the yield on the 10-year bond retreated toward 4.75%, and the probability of a federal rate hike on 16 September dropped from 65% to 55%.

This influential Fed official stated that recent economic data have finally shown signs of slowing inflation, and that if this trend is confirmed by next week's figures, raising rates in September will not be necessary. He also indicated that next week's inflation data would carry more weight in his decision-making than the August employment report released today.

Tiffany Wilding, an economist at PIMCO, continues to "forecast a moderation in core inflation over the coming months. The current pace of core inflation (measured by the Personal Consumption Expenditures, or PCE, price index) represents a statistical anomaly that will likely be revised downward." "Furthermore, the labor market is not generating inflationary pressures. Workers' bargaining power - measured by their share of income - has been declining for several years and has just hit a historic low; this raises serious questions about employees' ability to negotiate wage increases, let alone fuel persistent inflation through a wage-price spiral. We are not convinced that the FOMC should raise rates to increase economic underemployment - certainly not in the labor market, which, judging by this indicator, is not the source of the inflation problem. Consequently, a patient approach still seems justified to us, especially given the encouraging recent data."

The euro remained under short-term pressure due to persistently high crude oil prices ($94) amidst the geopolitical and military situation in the Middle East.

"Since the resumption of airstrikes in the Middle East last weekend, statements from US officials have remained contradictory. Trump says the strikes will be 'short-lived,' while his Secretary of State says they will continue as long as the Iranians threaten shipping lanes. Meanwhile, the US military is still deploying forces to the Middle East. In any case, upward pressure on energy prices persists, with oil climbing back above $95 per barrel for the first time since July and - most notably - European liquefied gas prices exceeding 70euros/MWh for the first time since early 2023," note economists at LPBAM.

Right now, the EUR/USD is trading at $1.16122.

KEY TECHNICAL FACTORS
Since 19 August, the EUR/USD has been testing the 200-day moving average (shown in brown) as it seeks to establish a trend. There is currently no clear technical signal justifying a position in either direction.

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

We will maintain this neutral stance as long as the EUR/USD remains between the support level at $1.1512 and the resistance level at $1.1711.