EUR/USD: Densest session of the week

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The Euro continued its downward movement against the Dollar, while the debates opened (finally!) on the budget in the French National Assembly, the macroeconomic calendar intensified this Friday, and Donald Trump toughened his tone against his Russian counterpart Vladimir Putin.

The budgetary debates are getting tough in the Assembly, and traders will be able to see to what extent the different political sensibilities represented are ready to compromise.

Guest of BFMTV this Friday, October 24, Olivier Faure issued an ultimatum to Sébastien Lecornu on the budget, estimating that “for the moment, we are very far from the target”.

“If we are not heard, history ends.” Olivier Faure issued an ultimatum to Sébastien Lecornu this Friday, October 24 on BFMTV, raising the threat of government censorship.

Political developments that will be reflected in the Moody’s verdict on the French rating this Friday.

In terms of statistics, currency traders took note of the first estimates of the PMI activity barometers for services (54.5) and for industry (50) in October in the Euro Zone.

“The weakness of the French economy is increasingly weighing on the performance of the euro zone. While the economic situation has improved significantly in Germany, the contraction accelerated for a second consecutive month in France. As a result, the growth of the euro zone, although slightly faster than in September, was much less marked than it could have been without the impact of the weak performance of the French private sector”, enlightened Dr. Cyrus de la Rubia, Head economist at Hamburg Commercial Bank.

Note the publication of consumer prices across the Atlantic at 2:30 p.m. Inflation statistics which come out with a huge delay, due to the workforce mechanically and drastically reduced by the shutdown.

In terms of international politics, the appetite for risk is mechanically contracting with new American sanctions against two Russian oil companies, namely Rosneft and Lukoil, including a freezing of their assets in the United States and the ban on American companies from trading with them.

“These are the first significant 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, 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 Council of Governors of the ECB on the one hand and that of the Monetary Policy Committee of the Fed on the other hand, between October 28 and 30.

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.

At midday on the foreign exchange market, the Euro was trading against $1.1610 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 1.1608 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 595 pips and the risk of loss is 123 pips.

DAILY DATA CHART