EUR/USD: an undisputed downward trend is in place

The euro, one of the reference barometers of risk appetite on the financial markets, did not benefit from the relief provoked in the US on budgetary and energy issues.

Mr. Mitch McConnell, Republican Senator, reached out to the executive branch by proposing an extension of the debt ceiling renegotiation. This measure would make it possible to avoid a default by the United States, expected between 18 October and the beginning of November and which had been weighing on the markets for weeks. In addition, the possibility mentioned by the American executive of "drawing on" strategic crude oil reserves caused a healthy drop in the price of a barrel of light Texas crude. On Thursday at least...

The market psychology on the forex remains particularly unfavourable to the euro, due to a still unfavourable perspective of the future "pay" gap between the two currencies.

Other subjects, which do not appear on the radar, but which for lack of hot news do not permanently occupy the screens of the trading rooms, are still on the table, naturally: real estate crisis in China, bottlenecks in the logistical supply of certain raw materials and electronic components, and... the Sino-American trade conflict. This last subject is far from being behind us, according to John Plassard (Mirabaud). They could even make their "big comeback".

"The resurgence of trade tensions between Washington and Beijing is much more important than it seems. First of all, because there is a major economic issue at stake, but also (and above all) because it could make us forget the domestic and international worries of the American government, which is in free fall in the polls."

The investment expert adds: "US Trade Ambassador Katherine Tai has said that China has made commitments that should benefit certain US industries, including agriculture, which the US must enforce. The US President had indeed asked Katherine Tai to conduct a comprehensive review of US trade strategy towards China. The ambassador said that the US was ready to use "a full range of tools" at its disposal and would develop "new tools as needed to defend US economic interests against harmful policies and practices". The trade tensions are just beginning and should surprise many."

Right now, the pair is trading at $1.1572.

KEY CHART ELEMENTS
Earlier last week we said that there was no need to plot a pullback to the $1.1675 area to "confirm" the market psychology in place. That is exactly what happened, which says a lot about the impatience of the selling camp. For the time being, the view will remain negative below the 20-day moving average (in dark blue). We are locking in new bearish targets at $1.1360 and $1.1150.

MEDIUM-TERM FORECAST
Given the key chart factors we have mentioned, our medium-term view on the pair is negative.

Our entry point is $1.1560. The price target of our bearish scenario is $1.1361. In order to preserve the capital invested, we advise you to place a protective stop at $1.1619.

The expected return on this forex strategy is 199 pips and the risk of loss is 59 pips.