EUR/USD: The Dollar will have no shortage of catalysts this week

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Above 4.30%, the yield on 10-year US Treasury bonds continued to put pressure on the Euro/Dollar currency pair, currently at the end of the formation of a wedge. The stagnation of employment, the main conclusion of the NFP report published on Friday, will not have affected the dynamics of the 10-year: it must be said that two exogenous, cyclical shocks weighed on these figures, which do not call into question the solidity of employment. These include massive strike action at aircraft manufacturer Boeing and the passage of several hurricanes, which affected job creation at various levels.

In detail, over the month of October, the American economy created 12,000 jobs, against a target of 106,000. The unemployment rate remained stable at 4.1% of the active population, while the increase in average hourly wages stood at +0.4%, exceeding the consensus (+0.3%).

The week which opens will be marked by the verdict of the American ballot boxes, on the night of 05-06 if applicable, and by the outcome on the 7th of a new meeting of the Fed’s Monetary Policy Committee.

“The Dollar index is in an overbought zone – which is usual just before the presidential election,” notes Christopher Dembik, investment strategy advisor at Pictet AM, who warns that it is difficult to say whether the name of the winner will be known in the wake of the election. “The counting of ballots lasted 16 days in 2020,” recalls M. Dembik, who adds that “due to a change in electoral rules, it should take even longer this time… Around 2 a.m. in the morning, we should have data on mail-in votes in Pennsylvania. This will be important, because Trump needs Pennsylvania, Michigan or Wisconsin to win. 5 a.m., yes the gap is significant enough, the name of the next tenant of the White House could be known.

Alexandre Baradez (IG France), however, notes a slight deflation of “Trump Trade”, [ce phénomène] which “denotes market behavior in which equity indices rise, the dollar rises as well as rates, in anticipation of fiscal stimulus measures and regulatory relief.” The analyst supports his point with online betting statistics and surveys.

“There was notably this unexpected poll in Iowa: while Donald Trump easily won the vote in this state in 2016 and 2020, a poll now gives Harris in the lead, notably due to the voting intentions of women. So that this was not the case during this same poll in September. Should we see a weak signal?

It is therefore possible that the Fed does not yet know the identity of the next tenant of the White House when it delivers its monetary verdict on November 7, very likely a (moderate, controlled) reduction of 25 basis points in the Fed Funds. A consensus which is based on excellent American economic statistics for the month of October, both in terms of consumption itself and in terms of consumer confidence.

In the statistical chapter this Monday, RAS on the side of the final data from the PMI barometers in the Euro Zone, very close to the first estimates for the month of October. No significant deviation from the consensus also for the Sentix index of investor confidence in the monetary union. The index came out at -12.8, still stuck in negative territory. The only German component, under the magnifying glass of currency traders obviously, improves a little, by almost two points.

At midday on the foreign exchange market, the Euro was trading against $1.0890 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. The flagship currency pair is currently in the process of finalizing a wedge plot.

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 1.0901 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 350 pips and the risk of loss is 50 pips.

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