EUR/USD: Europe's gas shock is testing the EUR

The euro remained bereft of oxygen, below perfect parity against the dollar, after the weekend's disappointment at the Kremlin's decision not to reopen gas supplies via the NordStram 1 pipeline after a three-day shutdown for "maintenance operations". Europe's gas shock is weighing heavily on risk appetite. "Investors may turn more towards Europe this week with many meetings scheduled, but also the risks concerning energy and the total shutdown of Nord Stream 1 announced on Friday, after three days of maintenance," notes Vincent Boy (IG France), who expects increased market volatility.

This nervousness was perfectly felt on Friday after the publication of the federal report on American employment. The NFP (Non Farm Payrolls) report, which showed signs, albeit timid, of easing on the employment front, and therefore in the direction of easing on the inflation front, only had a positive effect on the equity markets for a few hours, with Wall Street returning to significant losses at the close. It is worth noting that Wall Street will remain closed on Monday due to a public holiday (Labour Day).

The unemployment rate rose slightly to 3.6% of the active population, which remains close to full employment, but suggests a larger labour pool. Hourly wages (+0.4%) are not slipping, even slowing their rate of increase, and job creations in the private sector (excluding agriculture) exceed expectations at 320,000.

The week will be very busy on the statistical and macroeconomic front, culminating in the conclusion of the ECB Governing Council (Thursday). A major tightening (75 bps) is expected by a large section of traders, which would bring the Euro's "rent" to 1.25%. "The ECB seems determined to put the fight against inflation ahead of concerns about growth, the macroeconomic configuration remains complex and the political risks high," summarises Konstantin VEIT, portfolio manager at PIMCO.

In the immediate term, currency traders are dealing with two notable disappointments: the Eurozone services PMI which symbolically fell back below 50 points in final data for August, and the Sentix investment confidence index, which at -31.9, sinks further by completely missing the target.

At midday on the foreign exchange market, the Euro was trading at around $0.9917.

KEY CHART ELEMENTS
The underlying bias remains strongly bearish, below a 50-day moving average (in orange) that carries significant chart weight. In the immediate future, nervous oscillations around the parity are envisaged. Note the bearish acceleration of the aforementioned underlying trend line. The closer the 20-day moving average is to the 50-day moving average (in orange), the more interesting the bearish entry point seems to us.

MEDIUM-TERM FORECAST
Based on the key chart factors we have mentioned, our medium-term view on the EUR/USD is negative.

Our entry point is $0.9927. Our bearish scenario price target is $0.9701. In order to preserve the capital invested, we advise you to set a protective stop at $1.0080.

The expected return on this forex strategy is 226 pips and the risk of loss is 153 pips.