EUR/USD: How will the pay gap between the two currencies evolve?

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Bearish bias confirmed for the Euro/Dollar, which continues to suffer from low future return potential, of the first currency compared to the second, at a time when the American economy is displaying insolent resilience, and where the he European economy is losing momentum with its French and German leaders.

“Public deficits and debt are another increasingly threatening pitfall which require more effective actions from States. We see in France the difficulty of reducing public spending and the natural propensity to prefer tax increases that are not very favorable to growth If we add lower inflation than expected and now to the objective of the Central Bank, everything now militates for more vigorous action by the latter. Internal debates within the monetary institution are bringing out voices of concern. more and more vocal in favor of an acceleration of the process of lowering rates. The cycle of monetary easing which began in July will therefore, in our opinion, continue and even amplify” comments Emmanuel Auboyneau, associate manager of Amplegest.

Across the Atlantic, “the cycle of monetary easing has begun but it should be slow and steady. An election of Donald Trump could also slow down these rate cuts at the margin due to a slightly more inflationary policy, particularly in terms of commercial”, continued the asset management executive.

In Germany, it is particularly the German industrial model, THE traditional strong point, which is showing its limits after several years of inflation.

The markets remain focused on the major event which structures political life across the Atlantic: the elections of (or the!) President, in two weeks. The latest polls show an extremely close duel between former President Trump and J Biden’s current Vice President, K Harris.

“In this long-awaited presidential election, Donald Trump promises tax cuts for businesses and individuals, but intends to impose customs duties on foreign companies, in addition to carrying out mass deportations of immigrants and an overhaul ministries”, note Robeco strategists.

“Kamala Harris targets the middle class and invests in housing and health care development while increasing taxes on corporations and the very wealthy. Both candidates’ agenda is likely to widen the already growing budget deficit.

That being said, fiscal responsibility is far from the top of the list for voters, as the economy tends to be the dominant issue in the poll, says Mike Mullaney, director of global markets research at Boston Partners, Robeco’s sister entity focused on fundamental value investing.”

On the macroeconomic agenda this Monday, no significant figures to report. It will be expanded tomorrow with the American consumer confidence index (Conference Board).

At midday on the foreign exchange market, the Euro was trading against $1.0810 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 1.0813 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 1.0907 USD.

The expected profitability of this Forex strategy is 262 pips and the risk of loss is 94.000000000001 pips.

DAILY DATA CHART