EUR/USD: American inflation, French budget and geopolitics on the menu

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The Euro, against the Dollar, remained under pressure at the end of the week, under the effect of three cumulative factors: the estimated slowdown in the pace of monetary easing by the Fed, the particularly austere French 2025 budget, and the geopolitical situation. in the Middle East.

American inflation is a patient still under surveillance. The CPI (Consumer Price Index) was therefore published yesterday, and it was undoubtedly the highlight of the week from a statistical point of view. Retail prices increased by 2.4% in September, at an annualized rate, in the broadest basket of products, where the consensus had predicted an increase of 2.3%. Enough to further underline, after last Friday’s very muscular employment report, the impressive resilience of the American economy after such long months of high rates.

“Regarding the composition of inflation, energy prices continued to fall (-6.8%), encouraged by a sharp drop in gasoline and fuel oil prices, which somewhat eased the cost However, the costs of food and transportation continue to exert upward pressure, with increases of 2.3% and 8.5% respectively. more complex the Fed’s task of stabilizing prices without seriously impacting economic growth”, explains Quasar Elizundia, Expert Research Strategist – Pepperstone.

In the process, the Treasuries 10-year bonds, i.e. the yields on Treasury bonds maturing in 10 years, rose even further above 4%. And the odds of seeing the Fed lower its rates by 25 basis points in less than a month rose to nearly 88%, compared to 12% for a more pronounced cut, of 50 basis points. It is this trajectory of falling rates, mechanically revised, which favors the greenback against the single currency.

Furthermore, the Barnier government presented on Thursday the Finance Bill (PLF) for the year 2025. A draft austerity budget marked by 60 billion in savings or new taxes, mainly targeting the wealthiest. A project which will now be discussed, and amended if necessary, in the National Assembly.

In the geopolitical chapter, “the gears in the Middle East are accelerating”, notes Geoffroy Landoeuer, Director of Financial Management at Turgot AM. “In Lebanon, Israel managed in just a few days to injure thousands of Hezbollah soldiers and decapitate its staff. While the Iranian response was feared – it finally materialized on October 1 – oil prices , which have declined sharply over the period (-8%) due to the deteriorating international situation, will be worth watching…” Enough to weigh on the barometer of the appetite for risk that constitutes the single currency.

At midday on the foreign exchange market, the Euro was trading against $1.0945 approximately.

KEY GRAPHIC ELEMENTS

The oblique support line (drawn in black) has given way in a significant and increasing level of volatility. The 50-day moving average (in orange) also gave way quickly, the bearish message is reinforced. Next graphic event to watch, the imminent crossing of two remarkable moving averages, at 20 and 50 days.

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 1.0947 USD. The price target for our bearish scenario is at 1.0663 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1013 USD.

The expected profitability of this Forex strategy is 284 pips and the risk of loss is 66 pips.

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