EUR/USD: Scissors effect on the currency pair

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The 20-day moving average continues to gravitate above its 50-day counterpart, which does not cause an exit from our long position on the currency pair, but it is clear that the Euro/Dollar has clearly declined yesterday, under the pressure of a “scissors effect”, in the wake of the publication of American producer prices beyond expectations. The Euro, the reference barometer of the appetite for risk on the financial markets, lost a few feathers in the battle, while the Dollar benefited from a prospect of significant returns, through federal rates, while Treasuries 10 years experienced a jump towards 4.28%. As a reminder, these US Treasury bond yields were flirting with 5% on October 15.

These producer prices, which can be considered as a leading indicator of inflation, showed a monthly increase of 0.6%, well beyond expectations (+0.3%), excluding food and energy. “This is an important publication, because several components of the producer price index feed into the PCE inflation measure, which is the one that the Fed officially targets,” underlines Deutsche Bank. The publication, at the same time, of new weekly registrations for unemployment benefits still very close to the floor of 200,000 also constituted a warning for the trajectory of inflation, once again highlighting the tensions on the job market. job.

The main lesson is the confirmation that the return to a purely theoretical objective of inflation at 2% is not a direct path without pitfalls.

To follow across the Atlantic, the Empire State manufacturing index at 1:30 p.m., the federal report on industry at 2:15 p.m. and the consumer confidence index (U-Mich, preliminary data), at 3:00 p.m.

At midday on the foreign exchange market, the Euro was trading against $1.0890 approximately.

KEY GRAPHIC ELEMENTS

Consistent with our previous papers, we build a bullish position, which we maintain as long as the 20-day moving average (in dark blue) gravitates above the 50-day moving average (in orange).

MEDIUM TERM FORECAST

Considering the key graphical factors that we have mentioned, our opinion is positive in the medium term on the Euro Dollar (EURUSD).

Our entry point is at 1.0890 USD. The price target for our bullish scenario is $1.1143. To preserve the invested capital, we advise you to position a protective stop at 1.0809 USD.

The expected profitability of this Forex strategy is 253 pips and the risk of loss is 81 pips.

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