EUR/USD: Short respite

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The Euro/Dollar “lateralized” with difficulty near $1.0550 per dollar, while sovereign bond yields remained particularly firm, following last week’s publication of inflation, consumption, and industrial health companies showing brilliant health, and impressive resilience of the American economy.

Latest figures to date, retail sales for the month of October. A key measure of American consumer sentiment, they increased by 0.4% compared to September, and thus slightly exceeded the expectations of economists (+0.3%). The September figures were revised upwards, with an increase of 0.8% against an initial forecast of 0.4%. Furthermore, the “Empire State” index, the NY Fed’s manufacturing index, for its part exploded expectations, jumping from -11.9 to 31.2 points.

“The strength we are currently seeing in the economy allows us to approach our decisions with caution. Ultimately, the trajectory of policy rates will depend on the evolution of economic data and outlook,” he added . These statements were considered restrictive by the market. “It was a cold shower of reality for stock traders, who had pushed US stocks to an 11-year high after Trump’s victory,” says Spi AM’s Stephen Innes. It is therefore the shape of the downward curve of the remuneration of the Fed Funds which is disrupted.

These tensions were reignited last week by Powell, Chairman of the Fed, during an event organized at the federal branch of the Federal Reserve in Dallas. Based on the very good health of the American economy, he explained that a rapid rate cut was not justified, and that there was no urgency in the ongoing monetary easing process. A tone considered less dovish, if not more hawkish than expected. In the process, and according to the CME Group’s FedWatch tool, the probability of a monetary status quo at the end of the next FOMC jumped to 37.4%. The American 10-year, for its part, continues to simmer in the immediate vicinity of 4.43%.

These “inflationary” expectations across the Atlantic are naturally linked very directly to the expansionist policy of President-elect Donald Trump. “Trump’s victory should lead to a reduction in corporate taxes which should allow them to innovate and have comfortable margins,” for Christopher Dembik, investment strategy advisor at Pictet AM, who thinks about inverse “that the growth in earnings per share of 9% next year expected for CAC 40 companies is…optimistic in view of the risks linked to China and the trade war.”

As for the largest economy in the Euro Zone, Germany, it continues to suffer from a marked slowdown in its key sector, industry. The “ZEW” (investor confidence) published at the start of the week was worrying in this respect. “The ZEW (Leibniz Center for European Economic Research in Mannheim) fell significantly in November, in reaction to the election of Trump and to American customs duties which will weigh on the already struggling European manufacturing sector,” noted the Nomura strategists. “The gap between the sentiment of Eurozone investors and that of German investors has widened further. We believe that Germany risks being more strongly affected by the American crisis.”

To be continued this Monday, the NAHB index of the American residential market at 4:00 p.m. Also worth checking out, at 7:30 p.m. today, is a speech by Ms. Lagarde, entitled “The economic and human issues of a changing era” during an event organized by the Fondation des Bernardins, in Paris.

KEY GRAPHIC ELEMENTS

The currency pair has just come out from the bottom, in intense volatilityof a wedge pattern, which confirms the bearish bias, which is now fundamental. Since then, the fragile supports have broken one after the other. Negative review maintained.

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 1.0541 USD. The price target for our bearish scenario is at 1.0239 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0661 USD.

The expected profitability of this Forex strategy is 302 pips and the risk of loss is 120 pips.

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