EUR/USD: Pressure from a short moving average

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The Euro, the benchmark barometer of risk appetite in the eyes of fund managers, takes a break below the 20-day moving average (in blue) with the support of hopes for international trade. Trump said he was optimistic that a Sino-US trade deal would be signed, the outlines of which have just been negotiated by representatives of the two superpowers.

Furthermore, Brazilian President Luiz Inacio Lula da Silva said on Monday, October 27, that he could see a Brazil-United States trade agreement in the coming days, which could reduce customs duties imposed by Donald Trump against a backdrop of bilateral tensions. “I am convinced that within a few days, we will find a definitive solution between the United States and Brazil, so that life continues to be beautiful and joyful,” Lula told the press in Kuala Lumpur.

In terms of statistics on Friday, 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.

Furthermore, currency traders were reassured by consumer prices in the United States, a major publication which was hugely delayed due to staff numbers being reduced by the shutdown. Excluding food and energy prices, inflation reached 3% in September when economists surveyed by the Wall Street Journal anticipated a rate of 3.1%.

“The September inflation report confirms that increases in customs duties will have had only a limited effect on inflation in 2025 and in any case very much lower than what had been anticipated,” underlines Bastien Drut of CPR AM. “This report is also very reassuring for the other components of underlying inflation, namely housing and non-housing services, and will therefore allow the Fed (the American Federal Reserve, Editor’s note) to focus on the deterioration of the labor market. The rate cuts in October and December seem certain” he continues.

This Monday, the IFO business climate index in Germany just rose slightly to 88.4, narrowly beating expectations. It is the “expectations for the coming months” component which contributes the most to this encouraging score.

The week ahead will be busy in terms of monetary policy, with the outcome of the meeting of a Fed Monetary Policy Committee starting on Wednesday 29/10. A 25 basis point reduction in the main key interest rates is the preferred working hypothesis.

Guy Stear, Head of Developed Markets Strategy at the Amundi Investment Institute predicts that “the US Federal Reserve will make rate cuts in October, in December, then twice more during the second quarter of 2026.”

“But the market also anticipates it, and the more interesting question is whether the Fed press conference will support the very aggressive cuts embedded in the curve through early 2027. Another point that is now just as important: the way in which the Fed plans to respond to the drop in liquidity in the short term, given the significant sovereign debt issues in recent months. If the US Federal Reserve fails to meet very aggressive market expectations for rate cuts, we could see a modest rise in 2-year Treasury bond yields, but they could also be sustained, if the Fed begins to increase liquidity in the system.

At midday on the foreign exchange market, the Euro was trading against $1.1640 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 1.1642 USD. The price target for our bearish scenario is at 1.1013 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1761 USD.

The expected profitability of this Forex strategy is 629 pips and the risk of loss is 119 pips.

DAILY DATA CHART