EUR/USD: the dollar is still in control

Although the forces were tending to balance out in the very short term, the pressure remained on the Euro, on the monetary, graphical, technical and psychological levels, in the face of a dollar whose earning potential has increased sharply in recent days, with the change in tone of the Fed. On the other hand, the ECB is not yet willing to take a tight monetary turn, so as not to risk breaking the growth momentum at the worst possible moment.

Ahead of the next Fed meeting, the tensions of the last few days on sovereign yields suggest that operators are banking on a sharper tightening than initially expected, with a possible first rate hike as early as March. The verdict will come at the end of a two-day meeting on Wednesday. The press conference will be scrutinised in its slightest inflections of language.

In the meantime, traders have just taken note of the flash manufacturing PMI for January in the Euro Zone, which was well above expectations at 59.0, thanks to the support of the German component (60.4). For services, the score missed the target, albeit by a small margin.

On the Eurozone's leading industrial power, Phil Smith, Associate Director at IHS Markit, offers the following insight: "[German] industry is expected to recover in 2022 as supply bottlenecks ease, but seeing growth at this rate is already a welcome development. The drag on production from supply chain issues appears to have eased further, although there is still plenty of room for improvement on this front."

Right now, the pair is trading at $1.1303.

KEY CHART ELEMENTS
In our previous analysis of the leading currency pair, we warned of the "risk" of a false exit from the top of an extended wedge pattern. Here we are, and the expression of this false breakout has abruptly brought the spot against a 100-day moving average (in orange) with a sharp bearish bias. Traders will be able to gradually resume short positions in the EUR/USD spot by taking advantage of a much better entry point.

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

Our entry point is $1.1323. The price target of our bearish scenario is $1.1001. In order to preserve the capital invested, we advise you to position a protective stop at $1.1411.

The expected return on this forex strategy is 322 pips and the risk of loss is 88 pips.