EUR/USD: A copious menu for currency traders

(News Bulletin 247) – This article, with open access, is produced by the stock market analysis and strategy research team at News Bulletin 247. To ensure you don’t miss any opportunities, consult all the analyzes and discover our portfolios by accessing our Privileges area.

The Euro continued its decline against the Dollar on the eve of the Moody’s agency’s verdict on the French rating.

“It is worth remembering that at Moody’s, France benefits from the Aa3 rating with a “stable” outlook. In a gradual rhythm of adjustment, a rating agency first lowers the outlook, moving it from “stable” to “negative”, then secondly, decides to downgrade the rating if no improvement in the outlook is noted”, recalls Alexandre Baradez, head of market analysis at IG France.

Until now, the “sanctions” of the rating agencies have weighed more on the single currency than on stocks, with the CAC even enjoying the luxury of registering new historic highs.

“But on Friday, Moody’s could well decide to skip the outlook lowering step and go straight to downgrading the rating. Indeed, a rating agency can lower a credit rating without first changing the outlook. S&P, Moody’s or Fitch can lower a rating due to sudden events (such as financial difficulties, policy changes or market shocks) without first adjusting the outlook.

Investors are taking into account the Trump administration’s announcement of a new wave of sanctions against the Russian oil sector. The European Union has also tightened its own sanctions on Russian hydrocarbons.

“These are the first material American sanctions against Russia introduced since Trump’s return to the White House in January and they mark a radical change in tone compared to last week, when the two parties mentioned a possible meeting in Budapest between Trump and Putin” to discuss the Ukrainian file, underlines Deutsche Bank.

Finally, geopolitics partly explains the loss of appetite for measurable foreign exchange risk. D Trump said Tuesday evening that he did not want a meeting with Russian President Vladimir Putin if this meeting was of “nothing.” “I don’t want to waste time so we’ll see what happens,” he proclaimed to the press, according to comments relayed by Agence France Presse (AFP).

The meeting between the two men in Budapest, initially scheduled for two weeks, therefore seems postponed, in view of this declaration.

Currency traders will have a lot to do between now and the end of the month as two monetary policy meetings are looming: that of the ECB’s Council of Governors on the one hand and that of the Fed’s Monetary Policy Committee on the other.

Nomura economists expect “the ECB to leave its deposit rate unchanged at 2.00% at its meeting on October 30, [et] that the ECB will continue to focus on data and move forward through meetings, without changing its positions. ECB President Christine Lagarde should reiterate that the ECB is well positioned with rates at current levels (i.e. neutral) to deal with continued uncertainty linked to US policy.”

For the Fed, IbanFirtst experts expect “two additional rate cuts within 6 months, to 3.75% against 3.50% for the futures markets (futures contracts); due to the persistent inflation risk. We consider that the inflationary effect of American tariff policy will be less significant than initially anticipated. On the other hand, it will not be painless. Once the impact of shutdown on the publication of statistics will be estimated, we should start to see a rebound in inflation in the fourth quarter which should encourage the institution to be cautious.

Remember that the shutdown deprives currency traders of valuable benchmarks, particularly on employment and prices.

At midday on the foreign exchange market, the Euro was trading against $1.1590 approximately.

KEY GRAPHIC ELEMENTS

The bullish oblique that prevailed until now (in black on the chart) is now broken, with pullback confirmation. The negative view is offered under this oblique, while the relative strength index collapses. The 20-day moving average (in dark blue) has just broken the trajectory of its 50-day counterpart (in orange) at a significant angle.

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 1.1589 USD. The price target for our bearish scenario is at 1.1013 USD. To preserve the capital invested, we advise you to position a protective stop at 1.1731 USD.

The expected profitability of this Forex strategy is 576 pips and the risk of loss is 142 pips.

DAILY DATA CHART