EUR/USD: The dollar is popular as a refuge currency

The market psychology governing the Euro/Dollar currency pair remained unchanged as of Friday, in a risk-averse market that is already looking ahead to Jackson Hole, the traditional annual meeting of the world's leading money makers. The market will be looking for clues as to the pace of Fed rate hikes for the coming months in particular. J. Powell will be speaking there this Friday, with new clues to anticipate the size of the Fed Funds hike for the September deadline: +50 or 75 bp?

In the immediate future, the exchange rate has come dangerously close to "perfect parity" (i.e. one dollar to the euro), which was already reached on 15 July. And this is thanks to a warming of bond yields, with 10-year Treasuries worth 2.92%, still well away from the 3% mark.

Currency traders are digesting the latest indicators on both sides of the Atlantic. On Thursday, traders had to deal with the confirmation of the record inflation in the Eurozone for the month of July, at +9% in annualised terms, on the broadest basket of products. Excluding food, energy, alcohol and tobacco, the increase in prices was confirmed at +3.9%. In the US, the weekly unemployment benefit figures and the Philly Fed manufacturing index set the pace for Friday's session. Both indicators came in above expectations.

Right now, the pair is trading at $0.9999!

KEY CHART ELEMENTS
The bearish message is immediately reinforced by the spot's attitude in contact with the 50-day moving average (in orange), which has been resisted since 23 February. This underlying trend line is also becoming steeper. It is a major technical reference point as the reactions to its contact are strong and frank. The two consecutive dojis (16 and 17 August) were followed by a red candle with a particularly long body.

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 $1.0059. Our bearish scenario price target is $0.9801. In order to preserve the capital invested, we advise you to set a protective stop at $1.0126.

The expected return on this Forex strategy is 258 pips and the risk of loss is 67 pips.