EUR/USD: the FOMC meeting reinforces the bearish bias

Market psychology remained unchanged in the aftermath of the Fed's monetary policy meeting. A surplus of bearish energy, built up since the beginning of the week, was released after the announcements and the press conference of the powerful institution. By insisting on the transitory nature of the price hike, the Federal Reserve certainly confirmed its commitment to a reduction in its asset purchase policy, but showed no signs of rushing to raise rates per se.

John Plassard (Mirabaud) provided the following insights: "Since tapering refers to the Fed slowing down its bond purchases rather than reducing its holdings, the Fed's balance sheet continues to grow, and the Fed is therefore providing monetary stimulus to the economy. This could limit upward pressure on long-term rates from the Fed's reduced purchases. This is what we have been seeing for several months in particular."

The investment specialist summarises: "Through the Fed's new tool (flexibility) and the reaffirmation that tapering (reduction of asset purchases) does not necessarily mean higher interest rates, investors seemed reassured. However, given the modest movement in Treasuries yields, the consensus is still betting on the Fed making a policy mistake."

Ten-year Treasuries, the yield on LT government bonds, rose only symbolically above 1.60 before falling back below 1.58.

ECB President Christine Lagarde considers it "very unlikely" that the European institution will raise its rates (also to a low level) next year because inflation is still too low, she said yesterday.

Result: a status quo in the market psychology governing the currency pair, operators still expecting in the medium term an increase in "remuneration" between the two currencies, in favour of the greenback.

In terms of statistics, among the battery of indicators, the unemployment rate fell slightly, in line with expectations, to 7.3% of the active population, and above all, across the Atlantic, the ISM Services activity barometer beaten its target by a wide margin, at 66.6 in October. Furthermore, on the employment front, the survey by the private human resources firm ADP beat the consensus by highlighting more than 570,000 new jobs in the private sector (excluding agriculture). The verdict will come tomorrow with the monthly federal report.

Right now, the pair is trading at $1.1563.

KEY CHART ELEMENTS

The breakout now confirmed on 10/29 in daily data, and in a bout of volatility, of the 20-day moving average (in dark blue), whose bearish direction is becoming more pronounced, is inviting traders to resume their bearish initiatives on the Euro / Dollar currency pair. First target locked at $1.1360, second at $1.1150. A break of a fragile support zone at 1.1530 would increase volatility.

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 $1.1552. The price target of our bearish scenario is $1.1361. In order to preserve the capital invested, we advise you to position a protective stop at $1.1618.

The expected return on this strategy is 191 pips and the risk of loss is 66 pips.