EUR/USD: a contrarian rebound scenario is in place

Yesterday's highlight for forex traders was the release of the first estimates of the Eurozone's activity indicators (IHS Markit) for the current month. Whether it be for industry (62.4) or services (48.8), the barometer scores significantly beat expectations, thanks in particular to the driving effect of the German components.

Chris Williams, Chief Economist at IHS Markit, comments on the latest PMI Flash survey figures: "The eurozone economy showed unexpected strength this month, growing at a much faster rate than expected, thanks in particular to a record rise in manufacturing output. However, the business outlook deteriorated during the month as rising infection rates and new containment measures eroded confidence. With manufacturing benefiting from a rebound in global demand, while businesses offering direct customer services continue to suffer from social distancing measures, the current two-speed economy in the eurozone is likely to continue in the coming months."

Clearly, the health situation is weighing on the single currency's value: a comparison of the overall health situation on both sides of the Atlantic is unfavourable to the old continent. On the virus and vaccine fronts, if the situation is easing on the other side of the Atlantic - the government is now aiming to reach 200 million people vaccinated in 3 months, double the initial target reached on Friday - it is a different story on this side of the Atlantic, with several economic hubs confined to Italy, the Paris region and the north of France, among others, and concerns rekindled in Germany, where Angela Merkel wants to tighten the conditions for restrictions for Easter. The Chancellor speaks of a "new pandemic", due to the contaminations by the British variant.

"At the same time, the surge in global demand for industrial goods has created unprecedented strains on supply chains, pushing up input prices. Indeed, companies reported their biggest cost increases for a decade in March, with inflationary pressures likely to be passed on to consumer prices in the months ahead," adds Chris Williams.

Right now, the EUR/USD pair is trading at $1.1821.

KEY CHART ELEMENTS

The Euro/Dollar currency pair made an early exit from a bevel, a chart shape that is itself part of a broad bearish channel (black and dotted line on the chart below). As the spot is about to make contact with the lower bound of this corridor, a short-term bullish contrarian scenario is taking shape.

MEDIUM-TERM FORECAST

Given the key chart factors we have mentioned, our medium-term view is positive on the EUR/USD pair.

Our entry point is $1.1826. Our bullish scenario price target is $1.1999. To preserve the capital invested, we advise you to position a protective stop at $1.1744.

The expected return on this Forex strategy is 173 pips and the risk of loss is 82 pips.