EUR/USD: ECB meeting amidst a historic gas crisis

The EUR/USD remained under strong pressure, below perfect parity, as the ECB's Governing Council approaches. The latter will end tomorrow with a decision to raise rates (+75 bps in all likelihood), at a time when inflation is becoming chronic, especially as Moscow has now clearly acted on the use of gas exports as a political weapon.

The gas tap via the NordStream1 pipeline was supposed to be reopened on Saturday after three days of "maintenance operations", but the Kremlin did not keep its promise. Of course, some Russian gas continues to arrive in Europe by other routes, and the Europeans have not waited for this situation to sign new contracts with other suppliers, but it is clear that additional pressure is being exerted, raising the energy crisis on the Old Continent a notch.

Some managers even have a particularly pessimistic view of the situation, like Charles Monot (Monocle AM): Europe's dependence on Russian gas is real (up to 45%). We talk a lot about Germany, but Italy is also very concerned. In addition to heating us, gas allows us to produce electricity. Our network and our stocks should protect us until next March. If the following months are cold, we will have to make a choice: cut the gas or cut the electricity. Cutting the gas grid is dangerous, so the choice will be made quickly: we will cut the electricity.

In the US, the ISM Services index in the US stood at 57 points in August, after 56.8 in July, well above analysts' expectations of 55.6, a sign that the US economy is holding up despite inflation and rising rates.

In the immediate term, the revision of growth in Q2 in the Eurozone, to +0.9% in quarterly terms, allows the single currency to control its hemorrhage.

At midday on the foreign exchange market, the euro was trading at around $0.99.

KEY CHART ELEMENTS

The underlying bias remains powerfully bearish, below a 50-day moving average (in orange) that carries significant chart weight. In the immediate future, nervous oscillations around parity are expected. Note the bearish acceleration of the aforementioned underlying trend line. The closer the 20-day moving average gets to the 50-day moving average (in orange), the more interesting the bearish entry point seems to us. This is the reason why money management invites us to move the protective stop closer.

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 $0.9897. Our bearish scenario price target is $0.9701. In order to preserve the capital invested, we advise you to position a protective stop at $1.0001.

The expected return on this forex strategy is 196 pips and the risk of loss is 104 pips.