EUR/USD: The NFP as a statistical highlight

(News Bulletin 247) – This article, with open access, is produced by the stock market analysis and strategy research team at News Bulletin 247. To ensure you don’t miss any opportunities, consult all the analyzes and discover our portfolios by accessing our Privileges area.

The Euro, like the main equity indices in the Euro Zone (CAC and DAX), continued a timid technical rebound towards its short moving averages against the Dollar, while remaining in a confirmed bearish bias since the second half of July . All this against a backdrop of firm long-term rates, with the approach of a very important publication this Friday: the report on private employment (excluding agriculture) in the United States for the month of September. A report showing too strong figures would naturally provide additional credit for a further increase in Fed Fundsa scenario which is far from being excluded for the November FOMC.

In the immediate future, the CME’s FedWatch tool allows us to estimate the probability of a 25 bps tightening at 18.50%. It will be interesting to see, and to what extent, this figure will vary after the publication of the NFP, at 2:30 p.m. Here is the consensus: for the unemployment rate, the market expects a contraction to 3.7% of the active population. The target is 171,000 for job creation, and average hourly wages up 0.3%. Remember that yesterday, weekly registrations for unemployment benefits once again came close to the threshold of 200,000 new units, proof of persistent tensions.

The continued rise in government bond yields to LT on both sides of the Atlantic is weighing on risk appetite in 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 also 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 $1.0550 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 1.0553 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 1.0666 USD.

The expected profitability of this Forex strategy is 452 pips and the risk of loss is 113 pips.

DAILY DATA CHART