EUR/USD: Towards a continuation of the decline of 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). A decline 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, leaving currency traders 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).

“The American 10-year rate, which was moving in the 3.6% zone in mid-September, has rebounded significantly in recent days to make an incursion beyond 4%, its highest level since the beginning of August,” notes Alexandre BAradez (IG France). “Thomas Barkin of the Richmond Fed was unequivocal last week: ‘I’m more concerned about inflation than the job market,’ adding that he wasn’t talking about a ‘major resurgence’ but that the “the risk of getting stuck is very real” and that there were “pressures that slow us down in completing the last mile””

“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 statistics, there is little to get your teeth into on Monday. Let us nevertheless note the NFIB index of American small businesses, very close to the consensus at 91.5 points. And the deficit (structural let us remember) of the American monthly trade balance, at -$70.4 billion.

On the macroeconomic agenda this Wednesday, to follow as a priority across the Atlantic, wholesaler stocks at 4:00 p.m. as well as crude oil stocks at 4:30 p.m. The Fed Minutes will be released at 8:00 p.m. This is the traditional chronological account of the debates of the last Monetary Policy Committee. Forex traders will try to detect clues as to the extent of the next cut in federal rates. In the immediate term, and according to data from the CME Group’s FedWatch tool, the probability of a 25 basis point decline in Fed Funds is 86.7%.

At midday on the foreign exchange market, the Euro was trading against $1.0970 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, contrarian 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 1.0970 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 1.1052 USD.

The expected profitability of this Forex strategy is 211 pips and the risk of loss is 82 pips.

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