EUR/USD: The US 10-year at its highest since 2007

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The Euro remained under pressure against the Dollar, in a context of warming long-term rates. These tensions on the bond market always echo the firmness of central bankers on their monetary policy. At the end of last week, the American Federal Reserve expressed its desire to maintain its rates at high levels.

“The members of the FOMC still anticipate an increase in key rates before the end of the year before lowering them twice, against four previously, next year,” anticipates Thomas Giudici (Auris Gestion), based on the dot plots of the Fed, the famous dot chart published quarterly, which had the effect of a cold shower on the markets.

The President of the European Central Bank, Christine Lagarde, in the same spirit, declared that “interest rates will be set at sufficiently restrictive levels for as long as necessary”, during a speech before the Economic Affairs Committee and Monetary Affairs of the European Parliament. Isabel Schnabel, member of the board of governors of the European Central Bank, for her part indicated on Monday that “the inflation problem is not yet resolved”.

A situation which has a very simple corollary: the tension on long rates, which mechanically weighs on certain most “risky” assets. The strategists at Muzinich & Co summarize: “In the future, Western central banks hope to be able to return to their preferred position of maintaining monetary policy, currently billed as ‘higher rates for longer’.”

In terms of macroeconomics, after the new disappointment of Monday’s publication of the IFO business climate index in Germany, currency traders noted yesterday an even more pronounced drop than expected in the sacrosanct consumer confidence index in meaning of the Conference Board. To follow this Wednesday orders for durable goods in the United States at 2:30 p.m. Note that the statistical high point will not be reached this week until Friday with the publication of PCE prices, the Fed’s preferred measure in its assessment of inflation.

At midday on the foreign exchange market, the Euro was trading against $1.0560 approximately.

KEY GRAPHIC ELEMENTS

The almost complete retracement of July’s gains does not militate at this stage for a continuation of the advance of the currency pair, without formally excluding it. This retracement, by its magnitude, weakens the bullish message then delivered over a good part of the month of July. The outcome of the ongoing test of the 50-day moving average (in orange) will be decisive. The bearish message took 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 retained as long as the latter gravitates below the first. The latter, precisely, increasingly plays a graphic role of resistance.

The advantage of this investment plan is the discipline that it inherently induces.

MEDIUM TERM FORECAST

Considering the key graphical factors that we have mentioned, our opinion is negative in the medium term on the Euro Dollar (EURUSD).

Our entry point is at 1.0558 USD. The price target for our bearish scenario is at 1.0301 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0671 USD.

The expected profitability of this Forex strategy is 257 pips and the risk of loss is 113 pips.

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