EUR/USD: The American 10-year pot is simmering

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The Euro Dollar remained on a short-term bearish bias, under pressure from the warming of the American 10-year, close to 4.30%, the highest since July. A warm-up further encouraged yesterday by the impressively resilient content of the ADP firm’s survey on American employment, exploding expectations, as a preview of the federal report on private employment tomorrow.

Furthermore, currency traders have taken note of the publication of GDP for the third quarter. The US economy grew at an annualized rate of 2.8%, slightly less than the 2.9% growth economists had hoped for and the 3% growth recorded in the second quarter. But “this is still a very good statistic”, say ING economists, which reassures investors. “Consumer spending was very robust, as expected based on monthly retail sales data, increasing by 3.7% and, within this, spending on goods increased by 6%,” they continue.

Currency traders are keeping a close eye on the final stretch before the outcome of the American presidential election, while chatter is flying between the candidates, through meetings.

“As in the last elections, this could be decided by a few votes and the results could not be known the same day, each state having, moreover, its own electoral rules (and contesting the results)”, comments Thomas Giudici , head of bond management at Auris Gestion, who has the humility not to play the oracles: “It is therefore quite complicated to position the portfolios in one direction or the other as the result of the election is more of the casino than of political or financial analysis”.

If it is indeed impossible to predict the final result, which will probably not be known immediately on November 5, the two scenarios have different implications:

“If Vice President Harris wins, her expansionary tax agenda, while unlikely to be fully realized due to likely Republican control of the Senate, could nonetheless result in targeted tax measures such as an expansion of the child tax credit and an extension of some of Trump’s 2017 tax cuts”; says Michael De Palma, co-head of the global bond market at MacKay Shields LLC, in charge of Nordea AM’s US Investment Grade strategies.

In contrast, “if former President Trump wins the election, Republicans would likely control both houses of Congress, opening the door to a full extension of the expiring provisions of the 2017 tax cuts, and possibly to new tax breaks for corporations and small businesses Trump also discussed additional support for households, such as an expanded tax credit for families with children and a number of additional tax deductions for households.

On the macroeconomic agenda this Thursday, priority will be given to PCE prices, the Fed’s preferred measure in its assessment of price dynamics, as well as weekly registrations for unemployment benefits at 1:30 p.m. Also to follow are household expenses and income (1:30 p.m.) and the CHicago PMI (2:45 p.m.).

At midday on the foreign exchange market, the Euro was trading against $1.0865 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 1.0863 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 1.0951 USD.

The expected profitability of this Forex strategy is 312 pips and the risk of loss is 88 pips.

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