EUR/USD: A favorable breeding ground for the greenback

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The Euro/Dollar continued its downward trend, inversely proportional to the rise in long-term rates, on both sides of the Atlantic. The single currency, the “risky” currency par excellence, suffered from this risk aversion, while the greenback took on its traditional clothing as a safe haven.

The surge in American long rates, in particular, barely interrupted for a few hours by the publication of PCE inflation figures at the end of last week, remains relevant. The figures for job openings (JOLTS) in the United States yesterday, on the eve of the publication of the ADP survey and two days before the federal monthly report, once again cast a chill.

Job openings were higher than expected at 9.61 million in August, shattering the consensus which expected 8.815 million job creations after 8.92 million in July. Once again, the markets interpret this good news for the American economy as bad news for the financial sphere, as it gives credibility to the probability that the American Federal Reserve (Fed) will once again raise its key rates by the end of the year.

The American 10-year rate exceeded 4.8 this Wednesday morning.

First verdict next month with a new FOMC (Monetary Policy Committee). The CME’s FedWatch tool predicts a 25 bps increase in Fed Funds with a significant probability of 25.7%. At that time, the Fed will have new benchmarks on consumption, prices and employment.

The rise in rates “can be attributed to the resilience of the American economy and also to the persistence of high public deficits. This translates into the anticipation of relatively high key rates from central banks for longer than expected,” summarizes Sebastian Paris Horvitz, from LBPAM.

Remarks deemed hawkish (restrictive, belligerent in terms of monetary policy) were made in the first part of the week by Raphael Bostic, president of the Atlanta branch and Loretta Mester, President of the Cleveland branch.

At midday on the foreign exchange market, the Euro was trading against around $1.0490.

KEY GRAPHIC ELEMENTS

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 1.0489 USD. The price target for our bearish scenario is at 1.0101 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0626 USD.

The expected profitability of this Forex strategy is 388 pips and the risk of loss is 137 pips.

DAILY DATA CHART