EUR/USD: Euro Zone PMI survey evokes stagflation

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Pushed upward by the geopolitical situation, the Dollar continued to dominate the Euro, a risky currency itself penalized by new developments in the war in Ukraine. As a reminder, the Biden administration authorized Ukraine to use long-range missiles on Russian territory. Tensions rose further as Russia struck Ukraine with a hypersonic missile on the city of Dnipro. A missile that did not carry a nuclear warhead.

Geopolitics is not the only bullish catalyst for the Dollar, or bearish catalyst for the Euro as you wish. The difference in the pace of the economies on both sides of the Atlantic is another. The macroeconomic statistics published yesterday, on employment, real estate and industry, confirmed this. In particular, new weekly registrations for unemployment benefits, still close to the 200,000 threshold, continue to indicate a warming of the job market. Which should not improve with the deliberately expansionist policy that Trump intends to implement upon his arrival at the White House on January 20. With the inflationary risks that accompany it.

Immediately, currency traders have just become aware of the very first estimates of PMI activity barometers in the Euro Zone for November. And it is clear that red dominates, whatever the sector (industry or services) or the country (France, Germany, Euro Zone as a whole). A look at the German component alone for services is telling. The score, expected to be stable at 51.6, finally fell below 50 points (49.4), in the contraction zone. The German industrial component remains deep in red territory, at 43.2, exactly the same score as for France.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, comments on the latest figures from the PMI Flash survey: “The latest survey data highlights stagflation in the euro zone in November: activity has declined throughout the private sector while increases in prices paid and invoiced accelerated, notably under the effect of the increase in costs in the services sector, itself linked to the strong pressures on wages observed in the region throughout the third quarter Price inflation in the services sector is a real headache for the ECB and in such a context, some voices within the institution could argue in favor of maintaining rates at their current level. in December, however, most will probably stick to a 25 basis point reduction.”

To follow at 2:30 p.m. equivalent figures for the United States and at 4:00 p.m. the American consumer confidence index (U-Mich), as a first estimate.

At midday on the foreign exchange market, the Euro was trading against $1.0420 approximately.

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. However, at this stage the decline and the formation of a technical rebound cannot be long in coming, we are watching for the signs.

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 1.0428 USD. The price target for our bearish scenario is at 1.0101 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0586 USD.

The expected profitability of this Forex strategy is 327 pips and the risk of loss is 158 pips.

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