EUR/USD: The Dollar maintains the advantage in the short term

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At the heart of the past week, the Euro 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 the ‘inflation’, but worried about 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 the one decided in June, followed by another in September. It is justified by the slowdown in inflation in the euro zone.

“Inflation figures lower than expected and European consumption struggling to pick up have therefore got the better of the (last) most hawkish members of the European institution,” notes Thomas Giudici, head of bond management at Auris Gestion , who supports his point with macroeconomics, also looking across the Atlantic.

“As the ECB had no impact on the markets, investors had plenty of time to focus on American economic data and particularly on retail sales [le 17/10]. These came out above expectations and accelerated sequentially over the month (+0.4% compared to +0.3% expected and +0.1% in August). They are also progressing in volume (ie restated for the effects of price increases) and the “hard core” even jumped by +0.7% over the month, i.e. an annual variation of +4%, confirming the very good performance of consumption. American.”

Remember that consumption is structurally the primary “engine” of national wealth creation (GDP) in the United States.

“Thus, the resilience of the American economy continues. Coupled with a good start to the results season and the increasing probability of Trump’s victory, American assets have continued their march forward like the stock market or dollar indices.”

Currency traders, who will be deprived of sharp macroeconomic benchmarks over this first part of the week, will have plenty to do throughout the week, however, with in particular barometer indicators of activity on Thursday, and the IFO business climate index in Germany on Friday.

Forex traders are keeping a close eye on the polls, which are still extremely close, in the run-up to the American presidential election, THE big event that structures political life across the Atlantic.

“The US elections are a significant event likely to increase market volatility: political uncertainty, and market reactions can create both risks and opportunities for investors. For example, policies favoring certain sectors – green energy under the Democrats or deregulation under the Republicans – can lead to significant fluctuations in these areas”, analyzes Andrea Tueni, Head of Sales Trading Saxo Bank.

At midday on the foreign exchange market, the Euro was trading against $1.0820 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 1.0823 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 1.0876 USD.

The expected profitability of this Forex strategy is 158 pips and the risk of loss is 53 pips.

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