EUR/USD: Germany's ZEW contracts, 10-year treasury bills hardly retreat

The relative strength of 10-year Treasuries, combined with a general sense of caution ahead of the quarterly corporate earnings season on both sides of the Atlantic, led the pair to maintain a strong bearish bias.

"One of the week's events will be the start of the third quarter earnings season, traditionally started by the big US banks. We will be watching Blackrock and JPMorgan today, Citigroup and Bank of America on Thursday and Goldman Sachs on Friday," says Vincent Bay (IG France).

Traders will also be paying attention today to the publication of the minutes of the last Fed meeting, which could, according to Vincent Bay, market analyst at IG, "confirm the beginning of a reduction in asset purchases over the next few months, or even following the next monetary policy meeting on 3 November". A scenario still favoured by operators despite the latest disappointing figures on American employment.

As a reminder, over the whole month of September, the economy created only 195,000 jobs, against a target (consensus) of 495,000. As a reminder, in August, the US economy created 365,000 jobs. The unemployment rate - and this is the surprise - melted to 4.7% of the active population. The US remains far from the full employment target set by the Fed. The current "stock" is about 5 million less than before the virus crisis.

In the immediate future, we should take a look at the publication of the highly watched (because of its strong potential impact) ZEW investor confidence index in Germany. At 22.3 this month, the index is contracting slightly more than the consensus forecast.

Achim Wambach, President of the Institute, says: "The economic outlook for the German economy has darkened significantly. The further decline in the ZEW Economic Sentiment Indicator is mainly due to persistent bottlenecks for raw materials and intermediate products. Financial experts are expecting a decline in profits, especially in sectors that are highly dependent on exports, such as the automotive and chemical industries".

Right now, the pair is trading at $1.1555.

KEY CHART ELEMENTS
We said last week that there was no need for a pullback to the $1.1675 area to "confirm" the market psychology in place. This is exactly what happened, which says a lot about the impatience of the selling camp. For the time being, the view will remain negative below the 20-day moving average (in dark blue), which can be used as a trailing stop. We are locking in new bearish targets at $1.1360 and $1.1150.

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 $1.1561. Our bearish scenario price target is $1.1361. In order to preserve the capital invested, we advise you to place a protective stop at $1.1619.

The expected return on this Forex strategy is 200 pips and the risk of loss is 58 pips.