EUR/USD: -25 basis points at each Board of Governors?

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The Euro has accentuated its short-term bearish bias against the Dollar, against a backdrop of anticipation of an acceleration in the rate of reduction of key rates, in a Europe relieved by the “control of inflation”, but worried about to the health of German industry, the situation of French public finances and generally, the state of the economy of the monetary union.

Unanimously by Governors, the European Central Bank decided to lower its main key rate by 25 basis points.

This is the third reduction in its key rates this year, after that decided in June, followed by another in September. It is justified by the slowdown in inflation in the euro zone.

“Above all, even if she did not commit to anything, Lagarde did not close the door to faster rate cuts and stressed the importance of the projections of the Treasury services and the next data publications in the weeks to come”, commented Nadia Gharbi, Senior Economist, at Pictet Wealth Management following the press conference yesterday. Ms Garbi maintains her “vision that the ECB would cut by 25 basis points at each General Council meeting until June 2025, bringing the deposit rate down to 2.0%.”

“Ms. Lagarde acknowledged that the outlook for economic growth was weaker than expected, while risks to the ECB’s inflation forecasts are tilted to the downside,” Nomura economists added.

In terms of statistics, across the Atlantic, if the weekly registrations for unemployment benefits were not surprising, at 241,000 new registrations perfectly within the target, the level of retail sales jumped, excluding automobiles over one month, by 0.5% , against a consensus of .01%. Finally, the Philly Fed manufacturing index soared to 10.3, up from 1.7 last month. This further illustrates the impressive resilience of the American economy after so many months of high rates.

RAS on the monthly report on the American industry and the dynamics of NAHB real estate prices, very close to expectations.

Furthermore, the final consumer price data in the Euro Zone came out in line with the first estimates for the month of September, at +2.7% on an annual basis, excluding food, alcohol, energy and tobacco.

Note that, published overnight, Chinese quarterly GDP came out in line with expectations, at +4.6% on an annual basis.

At midday on the foreign exchange market, the Euro was trading against $1.0840 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 1.0840 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 1.0891 USD.

The expected profitability of this Forex strategy is 175 pips and the risk of loss is 50.999999999999 pips.

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