EUR/USD: C. Lagarde should bring out the light artillery

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The Euro/Dollar currency pair remained under pressure, against a backdrop of a dichotomy between a powerfully resilient American economy, and a disparate Euro Zone economy, with more vague and less strong growth prospects. And this on the eve of the outcome of a new Council of Governors of the European Central Bank (ECB).

A reduction of 25 basis points in the main key rate is almost certain. Patrick Barbe, head of investment grade bond investing in Europe at Neuberger Berman, expects “the ECB to maintain its approach dependent on economic data. However, Ms Lagarde is expected to update the Central Bank’s outlook on inflation, given that their last meeting in September had not taken into account the fall in energy prices”

A component which is naturally favorable to a reduction in inflation. “This favorable development, combined with the deterioration of economic conditions, should encourage the ECB to ease its rates at its next two meetings, despite the caution displayed by its president, Christine Lagarde. German government bonds are particularly sought after at “approaching the ECB meeting, leading to an easing of rates”, for Grégoire KOUNOWSKI, Investment Strategy Advisor at Norman K.

On the macroeconomic agenda this Wednesday, priority will be given to import prices in the United States at 2:30 p.m. and a speech from Ms. Christine Lagarde at 8:45 p.m. The President of the ECB will speak at an event at the Bank of Slovenia in Ljubljana. This first part of the week is rather calm on the macroeconomic front before a much busier day on Thursday (retail sales, unemployment benefit registrations, Philly Fed, industrial production). On Friday, Chinese GDP will be revealed for Q3, expected to increase by 4.6% on an annual basis.

Note a disappointing surprise, however, yesterday, with the fall to -11.9 in the NY Fed manufacturing index (Empire State).

At midday on the foreign exchange market, the Euro was trading against $1.0895 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 1.0894 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 1.0961 USD.

The expected profitability of this Forex strategy is 229 pips and the risk of loss is 67.000000000002 pips.

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