As you know, this is THE week for central bankers, even though the US Federal Reserve is likely to overshadow its counterparts. If there is a surprise, it is unlikely to come from the rate cut itself, but rather from its magnitude. For the moment, bets are on a 25 basis point cut, but attention will focus mainly on the cross chart in order to better understand the positions of each of the committee members.
One of the last potential clouds on the horizon was the publication of the consumer price index. Although it came in slightly higher than expected, the versions excluding volatile items were published bang in line with expectations, further reinforcing the likelihood of an interest rate cut on Wednesday. However, investors will focus primarily on the dot plot, i.e., the rate path expectations of all members of the steering committee. More than ever, this update will be scrutinized closely as it will provide insight into the Fed’s views on the extent of rate cuts between now and the end of the year. Technically, the US 2-year yield remains above 3.50% ahead of Jerome Powell’s speech. Unsurprisingly, a dovish tone should push this key technical level lower and pave the way for further easing.
On the other side of the Atlantic, France has, unsurprisingly, lost its AA rating. Although the markets have reacted little to the announcement, we will still be monitoring the 10-year OAT, which is testing its resistance around 3.60%. Breaking through this level would be a bad omen for public finances going forward, as it would mark the end of the consolidation that has been underway since the end of 2023.
Technically, the EUR/USD is struggling to break out of its horizontal consolidation channel, whose upper limit is 1.1740. Breaking through this threshold should open the way to 1.1830, or even 1.1918/28. It should be noted that the spread between Germany and the United States (in white) continues to narrow, which is weighing on the performance of the US dollar (in blue) and ultimately argues for an upward breakout for the euro.
Source: Bloomberg