EUR/USD: A very clearly identified protective stop

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While maintaining its short-term bearish bias, the Euro/Dollar took a break, like the stock markets whose support comes, in part, from China. Chinese President Xi must discuss with Chinese regulators the recent rout of local markets, according to information from Bloomberg. This has given a boost to the CSI 300, an index which brings together the 300 largest capitalizations in the Shenzhen and Shanghai markets. , with an increase of 3.5%. For Deutsche Bank this information demonstrates the “seriousness of the situation”. Since the start of the year, the Chinese markets have been in total agony, with the CSI 300 losing 3.5% over the whole of 2024 and 19% over one year.

Pay attention to one point, which may also weigh on all risky asset classes: the situation of American regional banks, even if their situations are heterogeneous and do not form a whole.

“New York Community Bancorp, a regional establishment which took over the assets of Signature Bank during its bankruptcy last year, has warned of potentially significant losses linked to its activities in commercial real estate (depreciation of $185 million in the last quarter ).” notes Thomas Giuduci, head of bond management at Auris Gestion.

“At this stage, the difficulties still seem limited to a few regional players but it will be necessary to be vigilant in the American financial sector, even if the Fed will surely not hesitate to take the necessary measures to avoid a possible systemic crisis like it ‘had already done in March 2023 (emergency liquidity measures).”

On the macroeconomic side, there is little to eat on Tuesday. Note slightly disappointing retail sales in the Euro Zone in January (-1.1%), below target. This Wednesday, currency traders will follow the publication at 4:30 p.m. of crude stocks across the Atlantic. Published this morning at 8:45 a.m., the monthly deficit (December) of the French trade balance increased, to -6.8 billion euros.

THE Treasuries 10-year, yield on 10-year American sovereign bonds, was close to 4.13%, and therefore remained significantly above 4%, a bar crossed in the wake of the publication at the end of last week of a federal report on private employment of very great solidity.

the unemployment rate, expected to rise to 3.8%, ultimately remains stable at 3.7% of the active population. Problematic for inflation, the average hourly wage accelerates upwards (+0.6% against a target of +0.3%), and above all, job creations jump, to more than 350,000 in the month of January ! To the point of raising fears of entry into a price-wage spiral, a specter so far fortunately avoided?

For strategists at Pictet Wealth Management, “it is too early to conclude that the labor market is warming up again, given other data showing a general cooling trend. But the report raises the risk of a re-acceleration of the economy, which, [alimenteraient] certainly bets on later rate cuts, and would reduce their cumulative magnitude over 2024. Powell has clearly opposed a rate cut starting in March, and the report [Non Farm Payrolls] close the door even more.”

At midday on the foreign exchange market, the Euro was trading against $1.0770 approximately.

KEY GRAPHIC ELEMENTS

Interestingly technical fact, the 20-day moving average (in dark blue, bearish), is currently breaking its 50-day moving average (in orange, horizontal), a first contact since November 13. The graphic and technical situation is tensing under this trend line. However, the angle of attack is not very important. This trend curve, the first cited, which is accelerating downward, will conveniently serve as a trailing stop.

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 1.0765 USD. The price target for our bearish scenario is at 1.0436 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0863 USD.

The expected profitability of this Forex strategy is 329 pips and the risk of loss is 98 pips.

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