EUR/USD: The Dollar benefits from renewed risk aversion

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The cocktail is more or less since the beginning of the week. Tension on long rates, induced by firmness in crude prices, and a feeling that even if the Fed is willing to take a break on Fed Funds, that it will keep them high for a very long time, weighs on appetite risk in the financial markets. The Dollar (refuge) is mechanically regaining color – green, of course! Note that the week of the Euro against the Dollar is very similar to that of the DAX30 or the CAC40, the main equity indices in the Euro Zone.

In the statistical chapter on Thursday, weekly registrations for unemployment benefits contracted to 216,000, far below expectations, and close to the level of 200,000 which was very often observed during the post-Covid recovery period. In the euro zone, the gross domestic product (GDP) was revised downwards in the second quarter, to 0.1% against 0.3% previously. In China, the contraction of exports in August for the fourth consecutive month, is part of a long series of bad economic indicators for the second world economy. “We think the economy will enter a recession in the second half,” asserts Capital Economics.

However, the market seems to rule out a price/wage runaway across the Atlantic, which has so far been fortunately avoided. And this because of the first signs, still timid, of easing tensions on the job market. “Before jumping to conclusions, however, it should be kept in mind that monthly U.S. employment data can be capricious, seasonal adjustments are tricky, and even aggregate data is subject to many revisions, often very significant” nuance Christian Scherrmann, US DWS Economist. “For example, August hiring was strong with 187,000 jobs created, but a downward revision of 110,000 jobs in the last two months suggests that momentum is a little less strong than initially expected. .”

To follow the consumer credits in the United States at 9:00 p.m.

At midday on the foreign exchange market, the Euro was trading against around $1.07.

KEY GRAPHIC ELEMENTS

The near total retracement of July’s gains does not militate at this stage for a continuation of the advance of the currency pair, without formally ruling it out. This retracement, by its magnitude, weakens the bullish message then delivered over a good part of July. The outcome of the ongoing test of the 50-day moving average (in orange) will be decisive. The bearish message takes shape with the break – now validated – of the 50-day moving average by its 20-day counterpart (in dark blue), at a significant angle. The short position will be maintained as long as the last one gravitates below the first one. The advantage of this investment plan is the discipline it induces by nature.

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 1.0701 USD. The price target of our bearish scenario is at 1.0436 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0793 USD.

The expected return of this Forex strategy is 265 pips and the risk of loss is 92 pips.

CHART IN DAILY DATA