EUR/USD: The phase shift continues

(News Bulletin 247) – This article, with open access, is produced by the stock market analysis and strategy research team at News Bulletin 247. To ensure you don’t miss any opportunities, consult all the analyzes and discover our portfolios by accessing our Privileges area.

In a context of stalling of the European economy compared to the extremely resilient American economy, the Euro/Dollar continued its downward movement. The last two sessions of the week, tomorrow and Friday, will also be an opportunity to take a closer look at this dichotomy, with a battery of PMI activity indicators on both sides of the Atlantic, as well as than the IFO business climate index in Germany.

“In this environment, the ECB has good reasons to revise its monetary adjustment”, for Bruno Cavalier, Chief Economist of Oddo BHF. “Policy was made very restrictive last year at a time when disinflation was not assured. Now, key rates should be much lower.”

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 that decided in June, followed by another in September. It is justified by the slowdown in inflation in the euro zone.

Currency traders are also keeping a close eye on the polls, which are still extremely close, in the run-up to the American presidential election, THE big event which 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 $1.0780approximately.

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 1.0785 USD. The price target for our bearish scenario is at 1.0551 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0881 USD.

The expected profitability of this Forex strategy is 234 pips and the risk of loss is 96.000000000001 pips.

DAILY DATA CHART