EUR/USD: Focus on the ZEW

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Against a backdrop of dichotomy between a powerfully resilient American economy, and a disparate Euro Zone economy, with more vague and less strong growth prospects, the Euro/Dollar continued its decline, even falling below $1.09 in the morning. , at its lowest since August 8.

The ZEW economic sentiment index in Germany, the main publication of the morning, may have risen slightly to 13.1, but this does not take into account in its interpretation, on a base effect.

“From a very low base, economic sentiment for Germany improved in the latest ZEW survey. Contributing factors include the expectation of stable inflation rates and the associated prospect of further reductions in interest rates. interest by the ECB. Positive signals also come from the German export markets. Economic expectations for the Eurozone, the United States and China have also improved significantly. “is probably linked to the economic stimulus measures of the Chinese government. These developments have probably also contributed to the rise in economic expectations for Germany”, comments ZEW President Professor Achim Wambach on the survey results.

Concerning the cut in ECB rates, mentioned above, it will be, barring a huge surprise, 25 basis points on Thursday at the end of a new ECB Governing Council.

“The European Central Bank (ECB) will again lower its key rate by 25 basis points this Thursday. That’s a certainty. In an ideal world, it would take inspiration from the Federal Reserve and lower it by 50 basis points. base While Germany is in recession, the European manufacturing industry is collapsing, and energy prices are four times higher in Europe than on the other side of the Atlantic, the ECB. is concerned about a possible price-wage loop in the services sector which has struggled to materialize since the start of the year”, analyzes Christopher Dembik, investment strategy advisor at Pictet AM.

And while France, or at least Mr. Barnier’s government, has just presented a particularly austere budget (finance bill), the Fitch agency has maintained the French sovereign rating at AA-, with a “negative” outlook. “. A proposed 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.

For its part, the Dollar is benefiting from a solid start to the quarterlies of large groups, particularly banking groups.

At midday on the foreign exchange market, the Euro was trading against $1.0920 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 ongoing crossing of two remarkable moving averages, at 20 and 50 days. The crossing angle is important, in light of the current correction.

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 1.0913 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 1.0975 USD.

The expected profitability of this Forex strategy is 248 pips and the risk of loss is 62 pips.

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