EUR/USD: the pair beats the May 2020 low

The euro continued to lose ground against the safe haven dollar, amidst the highly stressful backdrop of the ongoing invasion of Ukraine by Russian troops, with the capital Kiev now caught in a vice-like grip. Risk appetite in the financial markets is non-existent, due to fears of accelerating inflation through energy prices. It should be remembered that Germany, the leading economic power in the Eurozone, depends on Russia for almost 50% of its energy supplies. And the ongoing discussions between Western delegations on a potential boycott of Russian oil have just propelled crude oil to very high prices: a few hours ago, a barrel of Texas light crude oil was still over $124. "This decision could put a little more pressure on the US FED regarding the tightening of its monetary policy, while J. Powell confirmed a hike of only 25 basis points at the next FOMC meeting to be held next week", for Vincent Boy, analyst at IG France, who is keen to tick off the ECB's appointment, first of all. The Frankfurt-based monetary institution will conclude a new meeting of its Governing Council on Thursday.

"Although the ECB is expected to remain accommodative, it could be a little more forceful in tightening monetary policy in order to counter inflation, but also to stem the fall of the euro against the dollar," adds Boy (IG France). So beware of the language used in the press conference.

"We expect the ECB to revise its quarterly inflation projections upwards and remain open to an earlier end to net asset purchases than planned in December, once the current crisis has subsided," says Konstantin VEIT, portfolio manager at PIMCO. "In the longer term, there is still a lot of uncertainty as to what a neutral policy rate for the eurozone will be, but a rate between 0% and 1% seems reasonable compared to other geographies."

In terms of Friday's stats, the NFP (Non Farm Payrolls) report, a monthly report on employment, highlighted much better than expected job creation (+679,000 in the private non-farm sector) as well as an even stronger than expected contraction in the unemployment rate, to 3.9% of the active population. On Monday, the Eurozone Investor Confidence Index (Sentix) was released, falling to -6.9, the lowest since Nov. 2020. Sentix is an analysis firm specialising in behavioural finance. The indicator is calculated after surveying 2,750 investors and analysts on their economic expectations for the Eurozone in the next six months.

Right now, the pair is trading at $1.0886.

KEY CHART ELEMENTS
The transition phase between 4 and 23 February, in the form of a non-federating slide below the 100-day moving average (orange), is over. The bearish bias is aligned with the short term, and the red body of a remarkable candle on Thursday 24/02, illustrates the firm grip of the selling camp. With 5 red-bodied candles in the last 5 candles, the last one still being traced, and a continuous selling mobilization last week, the picture remains bleak. We are revising our bearish targets to $1.0685 and then if necessary to $1.0454.

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 $1.0924. The price target of our bearish scenario is $1.0455. In order to preserve the capital invested, we advise you to place a protective stop at $1.1068.

The expected return on this forex strategy is 469 pips and the risk of loss is 144 pips.