EUR/USD: the construction of a bearish leg is confirmed

Things remain bearish on the Euro/Dollar currency pair, in a climate of shrinking risk appetite on the European side of the Atlantic. While we will not talk about an epidemic "recovery" - we leave it to the epidemiologists to shed light on the issue - it is clear that investor confidence in risky assets is being affected. We will therefore focus here on this question of market psychology, without venturing to consider the probability of a fourth wave. In any case, the subject is of concern, even though a whopping 36.9% of the French population is vaccinated against the virus. An example among others that can influence this market psychology - which is a tangible reality -: the Secretary of State for European Affairs, Clément Beaune, has advised French tourists who have not yet booked their vacations to avoid Portugal.

Meanwhile, the dollar was unable to gain ground against the euro since the last FOMC meeting, while Wednesday's Fed Minutes revealed dissension among members.

In terms of Wednesday's statistics, traders had to deal with a surprise drop in German industrial production (-0.2% in May), versus a target of +0.4%, in monthly rate. Disappointment also on the other side of the Atlantic with the new job offers (JOLTS) below expectations, before the publication of the traditional "Minutes" of the Fed, minutes of the last meeting of the Monetary Policy Committee, which had resulted, as a reminder, in a tightening of tone suggesting one or two possible increases in key rates from the year 2023.

Right now, the pair is trading at $1.1838.

KEY CHART ELEMENTS

The $1.2000 level has been ruthlessly broken, as has the 100-day moving average (in orange), which is currently undergoing a downward slope inflection. Friday's black marubozu* is the perfect chart and technical translation of the market psychology. The idea remains negative below the 20-day moving average (in dark blue). Note that the slope of the long moving average mentioned above is in the midst of affirming and validating its bearish inflection.

After a contentious reaction from June 21-23, the spot quickly reversed, tracing three long high shadows in a row.

A fragile guardrail $1.1848/$1.1850 is now broken.

*This type of candle, characterised by a long body, with no shadow, or almost no shadow, shows a continuous mobilization of the side (seller in this case) on the time unit in question.

MEDIUM TERM FORECAST

Based on the key chart factors we have mentioned, our medium-term view is negative on the pair.

Our entry point is $1.1827. The price target of our bearish scenario is $1.1621. In order to preserve the capital invested, we advise you to position a protective stop at $1.1901.

The expected return on this forex strategy is 206 pips and the risk of loss is 74 pips.