EUR/USD: a bearish entry regains its appeal

After the release of the Fed Minutes, without any particular relief or lesson, the EUR/USD continued to "lateralise" below its 50-day moving average (in orange), a basic trend line blocking any further bullishness. Risk appetite, which is well reflected in the single currency's movements, remained low after a flurry of disappointing macro indicators (below expectations in any case), across the Atlantic, since the beginning of the week: IHS PMI, new home sales, Richmond Fed manufacturing indicator, durable goods orders...

It is in this tense context that traders will take note of a major indicator for this last part of the week, namely:
The PCE (Personal Consumption Expenditures) prices, the Fed's preferred measure for assessing price dynamics, with inflation control remaining at the heart of its priorities. "The American institution will continue [...] to raise its rates as much as necessary, in a data dependent approach, until inflation decreases in a "clear and convincing manner"", says Sebastien Grass (Auris Mgmt).

The question is to what extent the aggressiveness of US monetary policy will affect growth. "If the negative impact on growth of such a tightening is not in doubt, the Fed chairman continues to believe that a soft landing remains possible. Indeed, Jerome Powell considers that the US economy is particularly resilient with a low unemployment rate, solid consumption and healthy balance sheets and that it is therefore able to cope with a more restrictive monetary policy without the landing being too hard", says Mr. Grass.

Right now, the pair is trading at $1.0715.

KEY CHART ELEMENTS
The EUR/USD spot is now back in contact with its 50-day moving average (in orange), a trend line with a strong downward slope. An interesting entry point to target a fall in the spot towards its annual lows, while keeping a stop close, is now emerging.

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 $1.07140. Our bearish scenario price target is $1.0455. In order to preserve the capital invested, we advise you to place a protective stop at $1.0761.

The expected return on this strategy is 259 pips and the risk of loss is 47 pips.