EUR/USD: the dollar seduces as a refuge currency

The euro remained under strong pressure against the dollar, in a chronic inflationary context which is now pushing 10-year Treasuries close to the psychological threshold of 3%. An inflationary context which also prevails on this side of the Atlantic, weighing on the asset barometer of risk that is the single currency. And this at a time when EU energy ministers are meeting in Brussels to adopt a common position in the face of the Kremlin's demand that they be paid in roubles or risk having their gas taps turned off. The challenge is to measure the degree of solidarity on this issue, while the degree of dependence of EU members on Russian gas varies greatly, particularly between the two leading powers, France and Germany.

In addition, the week for traders will be particularly busy on the US employment front, with a preview of the new job offers (JOLTS) today, the survey by the private firm ADP on Wednesday, the weekly unemployment benefit registrations on Thursday and, as a highlight, the federal report on US employment for the month of April on Friday. These data are particularly followed by the Fed in its assessment of the degree of tension on the job market. The Fed will conclude a new meeting of its monetary policy committee on Wednesday. A 50 basis point increase in Fed Funds is on the table.

In terms Monday's stats, the final PMI manufacturing activity index for April in the Eurozone came out at 55.6, very close to expectations. Chris Williams, Chief Business Economist at S&P Global commented on the PMI survey: "Strong inflationary pressures are likely to weigh on demand. Further cost escalation, driven primarily by higher energy prices and many product shortages at suppliers, has resulted in the largest increase in manufacturers' selling prices in at least 20 years of comparable data collection for this variable. In short, the eurozone manufacturing sector is heading for a difficult period of falling output and soaring prices."

On Friday, the main event for traders was the release of Eurozone inflation, which came out at an annual rate of 7.6% for April, up from 7.5% previously. "Inflation should stabilise at a high level over the next few months," notes Vincent Manuel, Investment Director at Indosuez Wealth Management. "Compared to the US, energy represents a more important contribution and could be a source of adjustment in the near future. Clearly, the EU's energy vulnerability and the current geopolitical situation reduce visibility in the coming months. In this context, a more pronounced energy shock cannot be totally excluded."

Right now, the pair is trading at $1.0523.

KEY CHART ELEMENTS
Since breaking out of a broad consolidation wedge on 4 April, the short side is confident, with 18 red bodies in the last 22 candles drawn. A break of a fragile intermediate floor at $1.0850, which we described as a guardrail, has released additional selling energy in a bout of volatility. This break now validated leads to the locking of new bearish targets, towards $1.0250. It will then be time to contrariously anticipate a powerful challenge rebound.

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

Our entry point is $1.0520. The price target of our bearish scenario is $1.0251. In order to preserve the capital invested, we advise you to set a protective stop at $1.0651.

The expected return on this strategy is 269 pips and the risk of loss is 131 pips.