EUR/USD: A merciless moving average

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Under a merciless 20-day moving average, the Euro/Dollar currency pair continued its slide, with no warning sign of a technical rebound developing, while the US 10-year only consolidated by an iota, after the publication rather reassuring figures on American employment.

The survey by the private human resources firm ADP (Automatic Data Processing) has just highlighted 89,000 job creations in the private sector in September, a number well below the target. Enough to bring relative relief, as the publication of the monthly NFP (Non Farm Payrolls) report approaches. The opportunity will be clear to confirm or not an easing of tensions on employment, tensions themselves generating inflation. The meeting should therefore be marked in red in the speakers’ calendars, tomorrow at 2:30 p.m. In the meantime, operators will be able to learn about new weekly registrations for unemployment benefits this Thursday.

Naturally, any sign of relaxation in employment would be interpreted as an argument for the Fed to give a little “slack” on a very tight monetary rope… Note that the unemployment rate, in particular, is expected to fall at 3.7% of the active population, and the average hourly wage in the private sector is expected to increase by 0.3% monthly.

The continued rise in government bond yields at LT, on both sides of the Atlantic, is weighing on the appetite for risk on the markets currently. And the single currency constitutes a “risky” asset par excellence.

“These moves are starting to worry all asset classes,” James Wilson, a fund manager at Jamieson Coote Bonds Pty in Melbourne, told Bloomberg. “There’s a buyers’ strike going on at the moment and no one wants to go ahead with rising yields, even though oversold levels are quite high.”

Words judged hawkish (restrictive, bellicose in terms of monetary policy) were held 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 $1.0510 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 1.0508 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 1.0651 USD.

The expected profitability of this Forex strategy is 407 pips and the risk of loss is 143 pips.

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