EUR/USD: Pennant consolidation

(News Bulletin 247) – This article, freely accessible, is produced by the News Bulletin 247 stock market analysis and strategy research team. To not miss any opportunity, consult the full analyses and discover our portfolios by accessing our Privileges area.

The Euro/Dollar currency pair consolidated its violent rise that began at the end of last week, amid fears that the world’s largest economy would enter a recession.

Everything accelerated on Thursday, with the publication of an activity indicator (ISM manufacturing), two points below expectations that were themselves pessimistic, and on Thursday, with a report on employment that was particularly disappointing, notably on the job creation front, and the surprise increase in unemployment, to 4.3% of the active population. On Wall Street, the penalty was heavy, notably on technology companies that are just coming out of a quarterly ball that was, to say the least, contrasting.

The scenario of a cut, not of 25, but of 50 basis points in the remuneration of the Fed Funds, is gaining weight as the American macroeconomic statistics cool the mood. A little relief however on Monday with the ISM services which came out at 51.4, slightly above expectations.

As a reminder, the unemployment rate rose significantly, to 4.3% of the working population, and job creation collapsed in July, to 114,000. “This very mediocre job report corresponds fairly broadly to the ‘unexpected weakening of the labor market’ that Fed Chairman Jerome Powell has been talking about for several months and which would be a justification for rushing rate cuts. The unemployment rate is now significantly above what Fed members have forecast for the end of the year and a rate cut of 50 basis points (0.50 percentage point, Editor’s note) in September can no longer be ruled out,” explains Bastien Drut, head of strategy and economic studies at CPRAM.

The US employment report for August “will probably be the determining factor in the rate cut trajectory,” Lombard Odier said. “This could be either 50, 25 and 25 basis point cuts in September, November and December respectively, or three rounds of 25 basis point cuts,” the asset manager continued.

And it will be a question of employment this Thursday, with at 2:30 p.m. the publication of new weekly registrations for unemployment benefits, expected at 241,000, before the publication at 4:00 p.m. of the final data on stocks of American wholesalers. The first appointment is to be marked in red in the calendar of the traders.

“Beyond the topic of central banks, whether it be the Bank of Japan or the Fed, which have clearly contributed to this resurgence of nervousness, it is the theme of the potential slowdown in the American economy that has skyrocketed in recent weeks,” adds Alexandre Baradez (IG France). “Firstly in relation to the trend observed in macroeconomic publications, and then on the cautious, even fearful, speech of Jerome Powell during the last Fed press conference.”

At midday on the foreign exchange market, the Euro was trading against $1,0930 approximately.

KEY GRAPHIC ELEMENTS

Our short positions are immediately stopped on the EURUSD currency pair, with the volatility that exploded on Friday. We remain waiting for clear signals allowing us to glimpse a new sustainable directional, before exposing ourselves again.

MEDIUM TERM FORECAST

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

We will maintain this neutral opinion as long as the Euro Dollar (EURUSD) parity rates are positioned between the support at 1.0906 USD and the resistance at 1.1012 USD.

DAILY DATA CHART