EUR/USD: An unfavorable cocktail for the single currency

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The Euro/Dollar continued its downward movement, since the break of an oblique line (in black on the graph). An ebb fueled on the one hand by a legitimate contraction in the appetite for risk, against a backdrop of rising geopolitical tensions in the Middle East, and against a backdrop of great nervousness on the Chinese stock markets. The MSCI China fell sharply again at the start of the week after a public holiday, leaving investors cautious about the expected effects of the battery of public measures supposed to support supply.

Furthermore, the Dollar saw its “remuneration”, or at least its estimated remuneration gap, increase against the Euro, while the signs of resilience of the American economy increased. The latest eloquent figures to date, the NFP report published on Friday, a valuable report on the health of private employment.

As a reminder, the unemployment rate first of all, expected to be stable at 4.2% of the active population, is down 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. The market preferred to see the glass half full, reassuring itself about the capacity of the American economy to land softly, or even… not to land at all (no landing).

“We continue to think, for example, that the United States will experience a soft landing,” agree Erik L. Knutzen and Jeff Blzak, co-CIOs – Multi-Asset of Neuberger Berman.

“While American growth continues to surprise positively publication after publication, as evidenced once again by the latest activity indicators from ISM Services, growth in the euro zone, which was nevertheless expected to accelerate in the year, looks gloomy”, compares Thomas Giudici, head of bond management at Auris Gestion, who asks himself the following question: “has the market, once again, gotten a little too excited about forecasts of key rate cuts [fédéraux] ?

In terms of statistical figures, there was very little to sink your teeth into yesterday. Let us still mention the Sentix investor confidence index in the Euro Zone, which although still clearly in negative territory, rose to -13.8, moderately beating expectations. On the macroeconomic agenda this Tuesday, to follow as a priority the monthly American trade balance at 2:30 p.m.

At midday on the foreign exchange market, the Euro was trading against $1.0990 approximately.

KEY GRAPHIC ELEMENTS

The nervous oscillations will continue to be concentrated between two major levels, the 7,465 / 7,500 points on the one hand, and the 7,690 / 7,700 points on the other. A quotation band from which an exit would release additional energy. But in the immediate future, contrary movements, in a clear direction, are expected.

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 1.0988 USD. The price target for our bearish scenario is at 1.0759 USD. To preserve the capital invested, we advise you to position a protective stop at 1.1057 USD.

The expected profitability of this Forex strategy is 229 pips and the risk of loss is 69 pips.

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