EUR/USD: Triple top fully validated

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The Euro continued its downward movement against the Dollar, proof of a certain caution on the part of operators this week, where the macroeconomic indicators will have illustrated a contained slowdown of the main economic powers of the planet, against a backdrop of persistent fears over the American banking sector. . Latest hot news on the subject, PacWest, identified as the weak link in the system, announced a decline in its deposits last week.

Regarding the United States, “the slowdown remains the central concern, both in terms of economic growth and profit growth,” says Laura Corrieras, Equity Portfolio Manager, Indosuez Wealth Management. “At the start of the earnings season, we are seeing a certain caution, both from financial analysts and companies, more inclined to lower their outlook than usual. The evolution of monetary policy and the first quarter results will be the main catalysts for the markets in the coming weeks.”

The whole point of this market sequence is to refine, for the coming months, the relative trajectories of Fed Funds and key rates in the Euro Zone. “With the Fed appearing to be in ‘pause mode’ as other central banks, notably the ECB, continue to hike rates, this new report is not a game changer,” said William Gerlach, Regional Director France. and UK Iban First.

Juliette Cohen, CPR AM Strategist, explains this discrepancy in monetary processes between the Fed and the ECB.

“The Fed started its cycle of rate hikes in March 2022 and raised its key rates by 500 bps. Barring any surprises on future inflation data, it should not raise its rates any further. the tightening of credit conditions, which was already at work with the bank failures of March and April.

The ECB should, for its part, continue its monetary tightening until July and again raise its rates twice by 25 bp. In its decision-making, it will focus on three factors in particular: the outlook for inflation, the dynamics of underlying inflation and the speed with which rate increases are dampening the economy and bringing inflation down. “

In the American statistical department, the producer price index, up 0.2% in April, came out in line with the target. Moreover, the weekly registrations for unemployment benefits, although exceeding the consensus by 20,000 new units, still betray recurring tensions on the employment front. To be followed at 4:00 p.m., the American consumer confidence index (U-Mich). This is essential data to assess the solidity of an economy where the main driver of wealth creation is structurally domestic consumption.

At midday on the foreign exchange market, the Euro was trading against $1.0910 approximately.

KEY GRAPHIC ELEMENTS

The exit from the ascending channel, identified, and fully validated, is accompanied by a triple top structure (04/14, 04/26, 04/05)*, which supports our bearish scenario on the flagship currency pair. We are now monitoring the relative momentum of the moving averages, keeping in mind that the price/RSI divergence has already sent a pessimistic message.

* We will appreciate on each of these dates the high shadows of the corresponding candles.

MEDIUM TERM FORECAST

In view of the key graphic factors that we have mentioned, our opinion is negative in the medium term on the Euro Dollar (EURUSD) parity.

Our entry point is at 1.0910 USD. The price target of our bearish scenario is at 1.0711 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0991 USD.

The expected return of this Forex strategy is 199 pips and the risk of loss is 81 pips.

CHART IN DAILY DATA