EUR/USD: bearish signals persist

The Euro/Dollar, a marker of risk appetite in the financial markets, continued to be particularly hesitant in the immediate vicinity of a 50-day moving average (in orange), a downward trend line that acts as resistance. The few macroeconomic statistics released on Friday did not help the situation, with the final services PMI for the Eurozone coming out at 56 for May, very close to the first estimates. The "composite" data, including the industrial component published earlier in the week, is therefore available. At 54.9, these data mark an expansion of activity, but which "is starting to lose momentum".

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence commented on the latest PMI survey figures: "The growth outlook for the next few months appears to be on the downside. Raw material shortages continue to be a concern in limiting manufacturing activity, while businesses and households continue to face soaring costs. The economic rebound from the thaw in demand for services following the lifting of health restrictions is also showing signs of running out of steam."

The decline in confidence to one of its lowest levels since the start of the pandemic and the implementation of the first containment measures is therefore not surprising, with fewer and fewer businesses expecting to increase their activity over the next twelve months. How the region's economy evolves will depend on whether the current rebound in demand (which already seems to be waning) can offset the strong economic headwinds of geopolitical uncertainty arising from the war in Ukraine, supply tensions and rising living costs, which will almost certainly be exacerbated by tighter monetary policy. The coming months therefore look very challenging for the region and for the time being, despite the encouraging pace of growth in the services sector, it is impossible to rule out the possibility of an imminent contraction in the economy.

At midday on the foreign exchange market, the Euro was trading at around $1.0711.

KEY CHART ELEMENTS

The spot has just broken back below its 50-day moving average (orange), a trend line with a persistent downward bias. A daily candle close well below the lower shadow of Tuesday's candle would give more substance to the bearish scenario. The view therefore remains bearish but with no clear sign at this stage of a potential increase in volatility. The stop loss is clearly identified, just above the weekly highs reached on Monday.

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 $1.0726. 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 $1.0801.

The expected return on this Forex strategy is 271 pips and the risk of loss is 75 pips.