EUR/USD: despite the latest upturn, a downward bias remains

Like crude oil and equities, the euro, a marker of risk appetite, was tracking a technical rebound at the beginning of this week, while maintaining a bearish bias against the dollar, in a monetary environment that is much more favourable to the greenback as of the Fed's unequivocal return last week.

The tone and content of the Fed's minutes last Wednesday fueled the credibility of a monetary "tightening" scenario, with the necessary quotation marks, as the gradual nature of this tightening is assured. However, it is clear that the Fed's "hawks" have advanced their pawns. "The decision to reduce asset purchases by the monetary institution (tapering) could come before the end of the year," says John Plassard (Mirabaud) in these Minutes. "The investors could have the clear heart during the symposium of Jackson Hole which will take place [this week] from 26 to 28 August", continues the investment specialist.

"The highlight of the week is therefore the Jackson Hole symposium (which will be conducted by video conference) from Thursday to Saturday," says Vincent Bay, market analyst for IG France. "This meeting, during which the central bankers will meet and discuss the various monetary policies, should be an opportunity for them to clarify their policies and the ECB as the Fed will be particularly followed by investors."

"Jerome Powell could specify the timetable for the reduction of asset repurchases to come, which should lead to a very important volatility on the financial markets, which remain strongly dependent on monetary policy, especially in the United States," adds the analyst.

In the immediate future, the technical rebound of the single currency is fueled in part by the absence of bad surprises on the PMI activity indicators (surveys of purchasing managers), in all first estimates for August. At 59.8 for services and 61.4 for manufacturing, these indicators are not far from their respective consensus.

Chris Williams, Chief Business Economist at IHS Markit, provides the following insights: "The Eurozone's economic recovery maintained a strong momentum in August, with the PMI only slightly down from its July peak and posting its strongest average quarterly reading in 20 years for the first two months of Q3 2021. Although the spread of the new virus variant has caused many problems across the region, including demand and further disruption to supply chains, businesses have benefited overall from the easing of sanitary measures, which are now the least stringent since the start of the pandemic."

Right now, the pair is trading at $1.1716.

KEY CHART ELEMENTS
No change on the correlated chart and technical levels.

The 20-day moving average (in dark blue), which we mentioned in the preamble, is indeed exerting a pressure force, which is calming the few ardors at the end of the protest reaction. The general idea remains bearish and traders will be able to initiate "short" positions on the currency pair by locking in a target at $1.1485.

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

Our entry point is $1.1724. The price target of our bearish scenario is $1.1487. In order to preserve the capital invested, we advise you to position a protective stop at $1.1782.

The expected return on this Forex strategy is 237 pips and the risk of loss is 58 pips.