EUR/USD: Short-term bearish bias confirmed

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The short-term bearish bias was confirmed on the Euro/Dollar currency pair at the end of a week marked by major monetary meetings. Yesterday the ECB concluded a Governing Council.

As anticipated by the market, the European Central Bank decided to keep its key rates unchanged for the third time in a row, at 2%.

“Like the meeting last September, the ECB underlined the resilience capacity of the Euro Zone economy allowing it to face an environment that is still uncertain both in terms of international trade and geopolitical tensions,” commented Alexandre Perricard, President of Uzès Gestion

“At this stage, the ECB confirms the good positioning of its monetary policy with regard to the economic environment and the risks present […] Invariably, the central bank reiterates that it does not follow any predefined rate path and its future monetary policy decisions will depend on the evolution of the data and their impact on the inflation outlook.

The day before, the Fed made a widely anticipated cut of 25 basis points in its main key rate.

“While it is navigating by sight, the Fed estimated that the slowdown in the labor market was a more important concern than the persistence of inflation. This position is justified to the extent that employment figures are lagging economic indicators and monetary policy also acts with a certain lag. For the month of October, the Fed therefore preferred to expose itself to an additional rate cut rather than take the risk of waiting. What is less coherent, however, is the diversity “unusual dissension”, analyzes Jack McIntyre, Portfolio Manager at Brandywine Global (subsidiary of Franklin Templeton).

Remember that the August NFP (Non Farm Payrolls) showed a clear deterioration in the health of the private employment market, and that foreign exchange traders are deprived in the September report, due to the shutdown, this paralysis of federal public services.

“Miran’s position, in favor of a more marked reduction, can be considered too dovish. But that of Schmid, who did not want any reduction, combined with Powell’s statements during the press conference, where he indicated that he wanted to distinguish the Fed’s perspective on future rate cuts from that of the markets for December, cannot be ignored. This divergence implies less complacency on the financial markets, more volatility and more balanced flows in both directions”, continued the asset management executive.

On the statistical front, the main figure to remember this Thursday is the stability of inflation in the Euro Zone, at +2.4% in the very first estimates for October, excluding food, energy, alcohol and tobacco. The consensus predicted a very slight drop to 2.3%.

At midday on the foreign exchange market, the Euro was trading against $1.1570 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. The gap between these two technical benchmarks is increasing.

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 1.1570 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 1.1691 USD.

The expected profitability of this Forex strategy is 557 pips and the risk of loss is 121 pips.

DAILY DATA CHART