EUR/USD: a bearish bias remains on the euro

The EUR/USD's momentum continued to reflect the market's lack of risk appetite this week, with the threat of a bankruptcy of China Evergrande, China's second largest property developer, more present than ever. The approach of a new Fed Monetary Policy Committee (FOMC) next week remains on the minds of traders who wonder how the institution will still be able to justify the assurance of a massive and sustainable support.

In terms of recent statistics, two of the three main macroeconomic statistics on the other side of the Atlantic were easily surpassed. In particular, retail sales of August (excluding automobiles) accelerated sharply (+1.9%) to the surprise of the trading rooms. This indicator is important in an economy where traditionally, national wealth creation (GDP growth) is largely dependent on domestic consumption.

The "Philly Fed", on the other hand, swelled, reaching almost twice the consensus, as did the Empire State index the day before yesterday, showing the good momentum of confidence in the recovery of the industry. "Responses to the Manufacturing Business Outlook Survey suggest continued expansion in regional manufacturing conditions this month. Indicators of current activity and shipments have increased from their August readings. Price indexes remain elevated and continue to suggest widespread price increases. The survey's future indexes indicate that respondents continue to expect growth over the next six months, although the future indexes for general activity and new orders continued to decline," read a summary note at the end of the document.

Finally, the weekly jobless claims figures for the week of 6-13 September  were relatively in line with expectations, at just over 330,000 new claims.

These figures, seen through the prism of the stock market adage "Good news is bad news", an adage that can be reversed, are in line with the Fed's latest interventions, i.e. towards more firmness, or at least towards a gradual reduction in its support to the economy. And therefore in the direction of a potentially more remunerative USD.

See you next week for more clues and language from the Fed, which will complete a new monetary policy committee. For Thomas Costerg, senior US economist at Pictet Wealth Management, "the main message coming out of the Federal Reserve's 22 September policy meeting will be that it is "urgent to wait" before reducing monthly asset purchases (currently $119 billion per month). The Fed is expected to guide more or less explicitly towards a 'tapering' for the next meeting in November. We expect a first cut of $14 billion effective from early December; tapering should end next summer."

However, the internal debates could well be tumultuous, according to the economist, "since the regional members of the Federal Reserve seem to want a firmer 'turn of the screw' on both QE and rates afterwards, being more hesitant on inflationary risk, for the moment still swept aside by Powell. There is also a growing fear about the financial stability risks of leaving such monetary accommodation in the system."

Right now, the pair is trading at $1.1712.

KEY CHART ELEMENTS
The short term bearish trend, as well as the medium term on the spot, is aligning. The general idea remains bearish, especially since the formation of "three black crows" on 6, 7 and 8September and traders can initiate "short" positions on the EUR/USD by aiming at a first target at $1.1674. The second target is at $1.1486.

Only a clear breach of the 100-day moving average (in orange) would validate a behavioural reversal. However, this underlying trend line is taking on an accentuated bearish bias. In addition, chart resistance is taking shape below $1.1880.

MEDIUM-TERM FORECAST
Given the key chart factors we have mentioned, our medium-term view on the Euro Dollar (EURUSD) is negative.