EUR/USD: both currencies are suffering

Between a euro compressed by the brutal loss of risk appetite and a dollar whose "potential" return is revised downwards for the coming year, the EURUSD spot was balancing not without nervousness, under very significantly bearish short and long moving averages.

The stress in the markets, caused by the discovery of a new virus variant that is potentially as dangerous as Delta, is reflected in a tightening of the currency market.

"The rapid contagion is a concern, although the effects appear to be mild and vaccination rates around the world could avoid too much restriction and impact on the economic recovery," notes Vince Boy (IG France).

While the pace of US monetary policy normalisation is in question, inflation data (consumer prices) will be released on Thursday. Valuable benchmarks on employment were also published on Friday. The report shows that the US economy created "only" 210,000 jobs in the private sector (excluding agriculture) over the period.

With wage dynamics showing no signs of overheating, the report gives some "slack" to J. Powell's string. Earlier this week, Jean-Jacques Friedman - Chief Investment Officer of VEGA Investment Managers, a subsidiary of Natixis Wealth Management - wondered whether the appearance of this new variant would not finally give the great moneyman his most precious asset: time?

In any case, the discovery of the Omicron variant of Covid 19 is [...] a warning that, at least as much as inflation, the virus remains a market determinant that should be approached not as a hypothesis, but as a certainty with an unknown timeframe," summarised Alexandre Hezez, strategist for the Richelieu Group.

Last week in Europe, traders took note of the final data of the PMI Services activity indicators. For the Eurozone as a whole, the index came out at 56.0, slightly below expectations. Composite data (including industry) is now available. Chris Williams, Chief Economist at the Institute, warns: "Any improvement in the rate of economic growth signalled by the Eurozone PMI is likely to be short-lived. Not only has demand growth weakened, but business expectations for future growth have also fallen as concerns about the pandemic intensify again. With the data collected prior to the announcement of the Omicron variant, sentiment about the short-term outlook will inevitably have been further shaken, for both industry and services. More resilient expansions are being recorded in Spain and Italy, although even here recent gains are at risk if social distancing restrictions are to be tightened."

In more recent news, yesterday saw the release of the Sentix Eurozone investor confidence index. It came out very sharply lower at 13.6, below expectations.

Right now, the pair is trading at $1.1299.

KEY CHART ELEMENTS
The shorting trend was strongly reinforced by the break of a technical zone at 1.1530, on marubozu on November 10. This was a major event, which resulted in a massive release of selling energy. The short term is aligned with the bearish medium term for the EUR/USD, but the entry point is no longer optimal, as the likelihood of a contentious rebound forming at this stage is increasing. Traders will prefer to stay out of the spot market for the time being while waiting for a suitable entry point.

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

We will maintain this neutral view as long as the EUR/USD is positioned between support at $1.1150 and resistance at $1.1360.