EUR/USD: A monetary status quo from the Fed in November holds the rope

(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.

Against a backdrop of a surprise easing of long-term rates, the Euro regained a few pips against the Dollar, in a market which remains generally unconducive to risk-taking after the terrorist attacks by Hamas against Israel and the military response provided by the Hebrew State . “Beyond the catastrophic human aspect, the risk for the financial markets seems quite limited for the moment. However, with Iran’s probable support for Hamas, the risk of escalation is present with a potential direct impact on oil prices and therefore a resumption of inflation”, analyzes Thomas Giudici, head of bond management at Auris Gestion.

Yesterday, currency traders took note of a further drop in the Sentix index of investors in the Euro Zone (-21.9), a contraction that was nevertheless less severe than expected in the sense of the market consensus (-24). “The global economy is still in a difficult situation at the start of autumn in the northern hemisphere. In the euro zone, and particularly in Germany, the economic situation remains weak and recessionary trends persist. There is at least one slight glimmer of hope in the form of growing expectations. However, it would be premature to announce a turnaround. If we look further into other regions, we see a largely unchanged situation. Cooling trends dominate. Here too , no positive trend reversal is visible,” adds the Sentix in a commentary accompanying the raw data.

This morning, the single currency found slight support with the publication of a surprise monthly increase in Italian industrial production. We will have to wait until tomorrow for the return of consistent American statistical benchmarks, with producer price indices, which can be interpreted as a leading indicator of inflation.

In the immediate future, a look is needed at the American 10-year which is falling below 4.70, and at the CME’s FedWatch tool, which estimates the probabilities at 10.4% (in free fall!) an increase in Fed Funds of 25 basis points.

At midday on the foreign exchange market, the Euro was trading against $1.06 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 1.0602 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 1.0705 USD.

The expected profitability of this Forex strategy is 301 pips and the risk of loss is 103 pips.

DAILY DATA CHART