EUR/USD: the dollar retains its refuge status

The EUR/USD remains under strong pressure in the final part of another very bumpy week for so-called "risk assets". The macroeconomic data published recently as a confidence barometer (business climate in Germany, US consumer confidence) are weighing heavily, in a climate clouded by the prospect of persistently high inflation. The latest figures published yesterday morning by INSEE confirm this for France, with the CPI at +0.7% month-on-month. As was the case yesterday with the PCE (Personal Consumption Expenditures Index) price index, the Fed's preferred measure of price dynamics, which came in at +0.3% month-on-month. In addition, and to be complete on Thursday's set of figures, new weekly jobless claims, at 230,000 new units, came in very close to expectations.

In the meantime, traders are dealing with the final IHS Markit PMI data for June in the Eurozone, which was released this morning at 52.1, up very slightly on the initial estimates. Chris William, Chief Business Economist at S&P Global Market Intelligence provided the following additional insights to the raw data:

"The slowdown looks set to accelerate over the coming months. Raw material inventories and unsold goods are rising due to lower-than-expected production and sales, suggesting that an inventory correction will act as a further drag on the manufacturing sector. Supplies of many important inputs also remain constrained and concerns about energy and food supplies have added to the nervousness about the future."

Right now, the pair is trading at $1.0420.

KEY CHART ELEMENTS

The failure to breach the 50-day moving average (in orange) is now in place, and the downside targets towards $1.0350 and $1.0250 are locked in. A close on the weekly lows in week 23 reinforced the bearish message. Further contact with the aforementioned trendline would further strengthen the quality of the entry point. This is exactly what happened last Wednesday, on a zone of convergence of two remarkable moving averages. Next test: $1.0350, then $1.0250. Below that, the perfect parity (1 Dollar = 1 Euro), would act as a magnet.

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 $1.0434. Our bearish scenario price target is $1.0001. In order to preserve the capital invested, we advise you to place a protective stop at $1.0607.

The expected return on this forex strategy is 433 pips and the risk of loss is 173 pips.