EUR/USD: Week 25 weekly candle delivers a negative message

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Last week, ultra volatile on the Euro / Dollar currency pair, will have given birth to a reversal candle with a very significant upper shadow. The hawkish messages, in the remarks and/or the rate hikes, whether for the Fed, the ECB or the Bank of England, will have called currency traders to order on the necessary fight against persistent inflation. At the same time, signs of an economic slowdown have multiplied, on both sides of the Atlantic with the PMIs, as well as in China, where the authorities’ lack of recovery measures is a source of tension, penalizing for so-called “at risk” assets.

“Despite clearly negative supply shocks, central banks have been keen to rely on inflation. With official rates having already risen significantly, plans for future tightening are more nuanced,” reads the statement. weekly report on the European economic situation of Nomura.

The atmosphere was particularly weighed down by the publication on Friday of a battery of PMI activity indicators in Europe. All targets are completely missed. In particular, the German industrial component stands at 41.0, the lowest since… May 2020. The services component in France, expected at 52.2, collapses to 48. Across the Atlantic, equivalent indicators were published, with the key unpleasant surprises as well, particularly on the front of its industrial component, which came out at 46.3. the “composite” PMI index fell back to 53 at least in June, also marking a slowdown compared to May (54.3).

This morning, the IFO business climate index in Germany, expected to drop to 90.7, actually fell further, to 88.5, the lowest since January. Remember that the leading economy in the Euro Zone has technically entered into recession. “Investors’ economic expectations clearly reflect their pessimism. On the companies themselves, the prospects felt by respondents are even worse. It is primarily the weakness of the manufacturing sector that is plunging the German economy into troubled waters” , could we read on the press release accompanying the results of the investigation.

The agenda will become more dense tomorrow with durable goods orders in the United States and the consumer confidence index (Conference Board).

At midday on the foreign exchange market, the Euro was trading against $1.0900 approximately.

KEY GRAPHIC ELEMENTS

The 20-day moving average (in dark blue) has just cut downwards the trajectory of its 50-day counterpart (in orange): the bearish message emerges strengthened. Note the importance of the crossing angle of these trend curves. Next intermediate threshold identified: $1.0550, a breach of which would have consequences in terms of occasional downward acceleration.

The short position will be held with discipline as long as the 20-day moving average gravitates below its 50-day counterpart (in orange).

Immediately a bevel (wedge) concentrates the energy of the spot. It just made a foray above, with no formal sign of a bullish reversal. On the contrary, the spot retraced this incursion in a handful of hours. Hence a weekly candle (S25) very unattractive.

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 1.0906 USD. The price target of our bearish scenario is at 1.0551 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1001 USD.

The expected return of this Forex strategy is 355 pips and the risk of loss is 95 pips.

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