EUR/USD: the dollar retains its advantage

A global deterioration in risk appetite due to bad news from China, coupled with crude oil remaining firm, continued to penalise the Euro and favour the dollar in the foreign exchange market.

The Alipay and Evergrande issues are crystallising fears on the microeconomic level, while the very clear slowdown in the pace of growth of Chinese domestic consumption is raising questions. According to the latest release from the National Bureau of Statistics, retail sales in August grew by only 2.6% annualised, against a much more optimistic target of +7.0%.

To make matters worse, the coastal province of Fujian is experiencing a resurgence of virus cases, leading authorities in various other provinces to restrict travel in the country - this a week before a major tourist season with the mid-autumn and then the National Day vacations.

In the meantime, traders were presented with disappointing Eurozone trade balance figures, which missed expectations for July by 3.3 billion euros.

Yesterday, the NY Fed Empire State Index rose above 33 points, almost doubling the consensus figure of no change. As for the monthly federal report on U.S. industry, at least for last month, there were few deviations from the target, either for production itself or the rate of production capacity utilisation.

This Thursday's program will also be rich on the American side with no less than three major indicators with a strong potential impact at 14:30: weekly jobless claims, retail sales and the Philly Fed manufacturing index.

Right now, the pair is trading at $1.1761.

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

Only a clear breach of the 100-day moving average (in orange) would validate a behavioral 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 EUR/USD is negative.

Our entry point is $1.1772. 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 $1.1847.

The expected return on this forex strategy is 151 pips and the risk of loss is 75 pips.