EUR/USD: the dollar retains the upper hand

Despite a technical rebound in the middle of last week, the euro remains in a markedly bearish bias against the dollar, the day after the outcome of a meeting of the Fed's Monetary Policy Committee (FOMC). It is true that the Federal Reserve, in an ultra-cautious attitude, even in its carefully chosen language, did not make the markets nervous. The exercise was unsurprisingly a gradual preparation of the ground for a forthcoming tapering process (reduction of its debt purchases).

"However, there are a few touches that are a little more severe than expected," says Fred Rollin (strategy advisor at Pictet AM). "FOMC members anticipating a rate hike in 2022 are more numerous and expectations for 2023 and 2024 have climbed significantly. The governors voting this year are overwhelmingly doves. Next year will see the arrival of several hawks on the committee. Doves will still have the majority, but it will be tighter."

On the statistics side last week: Synthetic data for the Eurozone as a whole came out at disappointing levels (in the sense of deviations from consensus), while remaining comfortably above the 50 point mark that separates, by construction, an expansion from a contraction in the sector under consideration.

"The Flash PMI data for September highlights a sharp slowdown in economic growth, coupled with strong inflationary pressures in the single currency area," says Chris Williams, Chief Economist at IHS Markit.

"Concerns about rising prices, disruptions to supply chains and the risk of an imminent deterioration in demand due to the current pandemic environment have consequently eroded business confidence, as evidenced by a decline in the 1-year business outlook to its lowest level since January. For now, the pace of growth remains solid despite the slowdown seen over the month, but there is a strong risk that it will stall if the price and supply headwinds show no sign of abating, particularly if they are accompanied by a rise in virus cases as we head into autumn."

In the US, weekly jobless claims for the past week were up week-on-week (by 15,000).

Finally, on Friday morning, the IFO business climate index in the Eurozone's largest economy edged up this month at 99.0, almost perfectly in line with expectations. "This is the third consecutive decline. Companies were less satisfied with their current activity. They are also more sceptical about the months ahead. Supply problems for raw materials and intermediate products are holding back the German economy. The manufacturing industry is experiencing a bottleneck," the German institute comments.

Right now, the pair is trading at $1.1691.

KEY CHART ELEMENTS
The short term downtrend, as well as the medium term downtrend on 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 EUR/USD by aiming at a first target at $1.1674. The second is locked at $1.1486.

Only a clear breach of the 100-day moving average (in orange) would validate a behavioural reversal. However, this underlying trend line is now taking on a strong 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 $1.1735. Our bearish scenario price target is $1.1487. In order to preserve the capital invested, we advise you to place a protective stop at $1.1801.

The expected return on this strategy is 248 pips and the risk of loss is 66 pips.