EUR/USD: Central Bank Meetings and Chinese Banking Sector

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While the week will be punctuated on the monetary front by meetings of major central banks, including the Bank of Japan, the Bank of England and the Fed, the EURUSD spot continued its downward movement, against a backdrop of great caution regarding so-called risky assets. If this Monday is deserted on the macroeconomic front, it will be nothing for the rest of the week. Starting tomorrow, growth figures will be published in Europe, as well as the closely followed consumer confidence index (Conference Board in the United States). On Wednesday, it will be the turn of the survey by the private human resources firm ADP to set the tone on the health of American private employment, before the publication of the monthly NFP (Non Farm Payrolls) report on Friday. In the meantime on Thursday, traders will focus on weekly unemployment benefit registrations and the ISM PMI manufacturing index.

The opportunity to more precisely measure the “normalization” of the major economies of the planet, and the capacity, especially in the United States, to see economic activity land gently. One scenario is currently holding the rope: that of two reductions in federal rates this year, with one almost certainly at the start of the school year.

The risk appetite, which influences the Euro against the safe haven Dollar, may be affected by the Chinese banking sector. As Christopher Dembik, investment strategy advisor at Pictet AM, compiles, “The situation in China is causing cold sweats for investors around the world. This time, it is the banking sector that is the main focus. In one week, 40 banks have disappeared. The country is facing a silent banking crisis. Nearly 3,800 small local banks – mainly located in rural areas – are in difficulty. This is the equivalent of 13% of the Chinese banking system.”

At midday on the foreign exchange market, the Euro was trading against $1,0840 approximately.

KEY GRAPHIC ELEMENTS

After failing against a graphical resistance level around $1.0910, the EURUSD spot has retreated, now finding itself on a congestion zone of two notable moving averages, at 20 and 50 days.

MEDIUM TERM FORECAST

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

Our entry point is at 1.0838 USD. The price target of our bearish scenario is at 1.0601 USD. To preserve the capital invested, we advise you to position a protective stop at 1.0907 USD.

The expected return on this Forex strategy is 237 pips and the risk of loss is 68.999999999999 pips.

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