EUR/USD: A key moving average to give way

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Since the break of an oblique line (in black on the graph), the Euro/Dollar remained under pressure, in a geopolitical atmosphere that is not very conducive to risky assets, with the notable exclusion of crude oil. On Thursday, US President Joe Bien indicated that Israel could attack Iran’s oil infrastructure. This clearly boosted oil prices. “Undoubtedly, this rise in the price of oil and the growing tensions in the Middle East have affected risk-taking in the markets. Nevertheless, the market remains focused on the evolution of growth and inflation in the major countries , in particular because of their impact on monetary policies”, explains Sebastian Paris Horvitz, of La Banque Postale AM.

As currency traders face a rather poor week on a statistical level, they continue to digest the American employment report published Friday. A very, very solid report, which beat all consensus, particularly on the volume of positions created in the private sector. First of all, the unemployment rate, expected to be stable at 4.2% of the active population, fell to 4.1%. Job creation in the private sector (excluding agriculture) exploded to 254,000, against a consensus of 147,000 (!). Finally, average hourly wages increased by 0.4%, extending the trend from August (+0.5%). Figures which show great resilience in private employment, and which could theoretically push back expectations of a rate cut.

“US employment was much stronger than expected in September, implying that the Fed will almost certainly reduce the size of its rate cuts from 50 basis points (0.5 percentage points) in September to 25 basic points during its next meetings, as we anticipated”, writes Xavier Chapard of LBPAM.

This Monday, the Sentix investor confidence index in the Euro Zone, although still clearly in negative territory, rose to -13.8, moderately beating expectations.

At midday on the foreign exchange market, the Euro was trading against $1.0980 approximately.

KEY GRAPHIC ELEMENTS

The oblique support line (drawn in black) has just given way, in a significant and increasing level of volatility. If the 50-day moving average (in orange) were to also give way quickly, the bearish message would be reinforced. This test is fully validated, based on the magnitude of the red body of the candle on Friday October 4.

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 1.0980 USD. The price target for our bearish scenario is at 1.0665 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1071 USD.

The expected profitability of this Forex strategy is 315 pips and the risk of loss is 91 pips.

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