EUR/USD: Two major monetary events to come

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The Euro/Dollar currency pair, like all risky asset classes, advance and then recede in light of hopes and doubts about the ability of the American economy to land softly. This soft landing, the ideal scenario, took another hit on Friday with the publication of the highly anticipated NFP report on American employment in August. This Non Farm Payrolls was, it must be said, the statistical highlight of last week, given how disastrous the July report had been. This NFP, without being catastrophic, has revived doubts, to the point of weighing heavily on Wall Street, more particularly on the technology side of the market.

Because if the unemployment rate remains stable at 4.2% of the active population, the number of job creations in the private sector (excluding agriculture) comes to 142,000, well below the target. So, of course, the result is not as bad as in July (114,000), but it rekindles the debate on the nature of the landing of the American economy. In other words, the soft landing, and a fortiori the kiss landing, is no longer so relevant. Finally, the average hourly wage, at +0.4%, exceeds the consensus.

Not enough to significantly advance the debate that is nervously animating the trading rooms: a reduction of 25 or 50 basis points at the end of the next FOMC (Fed Monetary Policy Committee) next week, on September 18. The first option is credited with a 75% probability of realization according to the CME Group’s FedWatch tool.

“The August employment report, so eagerly awaited by the markets, did not provide a definitive answer on the extent of the slowdown in the American labor market. This leaves open the question of whether the Fed will begin to reduce its rates next week with a classic cut of 25 basis points (0.25 percentage points), or a more aggressive cut of 50 basis points (0.5 percentage points),” judges Xavier Chapard, strategist at LBPAM.

On the European side, the ECB is completing a new Governing Council meeting on September 12. Konstantin VEIT, portfolio manager at PIMCO, believes that the central bank “will reduce the interest rate on the deposit facility by 25 basis points”, but doubts that “the Governing Council will provide much guidance beyond September”. “The teams’ new macroeconomic projections should change little, and continue to show inflation close to target in 2025 and 2026.”

Coming at 4:00 p.m. are the final data on US wholesale stocks. On this side of the Atlantic, traders have taken note of the Sentix investor confidence index, down to -15.4, missing expectations that were already pessimistic. Naturally, Germany weighs heavily in this score.

“The drama surrounding the German economy is heading towards a new climax in September. The recession is raging ever more strongly. Even the eurozone as a whole is struggling with dangerous recessionary tendencies because of Germany. The situation in the rest of the world is also deteriorating, but investors there are a little more optimistic in their expectations,” according to the specialist behavioural finance firm.

At midday on the foreign exchange market, the Euro was trading against $1,1042 approximately.

KEY GRAPHIC ELEMENTS

A head and shoulders, neckline-based chart pattern is emerging, even as the relative strength RSI indicator is sending negative messages.

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 1.1041 USD. The price target of our bearish scenario is at 1.0759 USD. To preserve the capital invested, we advise you to position a protective stop at 1.1151 USD.

The expected return on this Forex strategy is 282 pips and the risk of loss is 110 pips.

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