EUR/USD: A point of balance before a new bout of volatility

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The Euro/Dollar currency pair found a very short-term equilibrium point, marking the end of the realization of the pullback (graphic rejection) on $1.0550, in the absence of benchmarks from Wall Street, remained closed yesterday for the Thanksgiving holidays. Note that the stock debates will resume this Friday, for a shortened session, which will end at 7:00 p.m. (East Coast time). And this without significant micro or macroeconomic publications. Suffice it to say that this half-session will provide little insight, as the number of operators risks being limited at the heart of this long weekend, sacred for many American families.

Remember that on Wednesday, the macroeconomic program was particularly copious. The US Federal Reserve’s preferred inflation gauge, PCE prices, accelerated slightly to 2.3% year-on-year in October, and 2.8% for its non-food and energy component, which is in line to market expectations. Shortly before the opening of Wall Street, a battery of American statistics, concentrated before Thankgiving, came to liven up the debates. Let’s start with the traditional new weekly registrations for unemployment benefits, which give an idea of ​​the state of tension in the job market. They come out at 213,000, very close to expectations. No deviation from the consensus regarding Q3 GDP, at +2.8% on an annual basis in preliminary data. Orders for durable goods do not send a particularly readable message either, due to a small deviation from the consensus, on the other hand, the monthly trade balance for goods, structurally in deficit, pleasantly surprises by coming out below the symbolic threshold of 100 billion deficit.

Basically, no major change, the economic disconnection of Europe vis-à-vis the United States is strengthening, reflected in the exchange rates by a disconnection of the single currency.

“The euro zone is more than ever penalized by its two (former) locomotives stuck, what’s more, in political blockages. While we still wonder how France will succeed in bringing its public finances back on the right path (without , we hope, impact growth too much), Germany, for its part, must completely review its economic model in place since the 90s and reunification: exports to China, cheap Russian oil and gas and of American protectionism. three, there are none left,” coldly notes Thomas Giuduci, head of bond management at Auris Gestion.

While on the contrary, “everything seems to be going well across the Atlantic: producer prices are slowing down, tensions on the labor market are decreasing and, above all, business leaders’ forecasts are reaching two-year highs.” and a half thanks in particular to the pro-business policy desired by the new American administration.”

Furthermore, the appetite for risk, directly correlated to the single currency, remained upset by Trump’s very recent comments on foreign trade. If we knew the 45th, and soon 47th President of the United States, was offensive on customs tariffs, very concrete declarations of intent shook the Asian and European stock markets.

He wants to impose customs duties of 25% on all products from Mexico and Canada and increase those for products imported from China by 10%. Donald Trump justifies these commercial retaliatory measures in retaliation for illegal immigration, and drug trafficking and in particular Fentayl, a powerful opioid which is wreaking havoc in the United States.

“As everyone knows, thousands of people are streaming through Mexico and Canada, bringing with them crime and drugs at levels never seen before,” he said. “This tariff will remain in effect until drugs, particularly Fentanyl, and all illegal aliens stop invading our country!”, continued the president-elect.

In the immediate future, currency traders have just become aware of consumer prices in the Euro Zone, as a first estimate for the month of November. Excluding food, energy, alcohol and tobacco, prices are up 2.7% year-on-year, stable compared to October, where the consensus was forecasting 2.8%.

At midday on the foreign exchange market, the Euro was trading against $1.0560 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.

In the immediate term, the flagship currency pair completes a pullback (graphic rejection) of school on $1.0550.

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 1.0562 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 1.0661 USD.

The expected profitability of this Forex strategy is 461 pips and the risk of loss is 99 pips.

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