EUR/USD: Next week's FOMC meeting and PMI may have a big impact on the pair

The Euro, one of the most significant markers of risk appetite on the financial markets, fell back below parity against the Dollar, a safe haven that has also seen its "yield" potential swell since the publication, earlier in the week, of US inflation figures showing anything but a slowdown. This is enough to put on the table the hypothesis of a 100 basis point increase in Fed Funds next week, at the end of a new FOMC (Federal Open Market Committee) meeting on 21 September.

"Rising housing costs [and] wage increases have not slowed, despite a slight rise in the unemployment rate," says Chris Scherrmann, U.S. economist at DWS "Both of these indicators can be addressed through monetary policy and a 75 basis point hike at the September meeting, and should therefore be seen as the minimum the Fed can do."

Yesterday, traders had to deal with the publication of half-hearted figures across the Atlantic. While the jobless claims (212,000 new registrations last week) and retail sales (+0.3% thanks to car purchases) were reassuring, the Philly Fed manufacturing index sank further, towards -10. On this side of the Atlantic, operators took note of the trade balance in the Eurozone, in deficit of more than 40 billion euros, very far from the consensus, the target being missed by more than 30%.

In this context, the PMI (purchasing managers' survey) activity indicators, in preliminary data for this month, will be decisive, and therefore particularly scrutinised. The German manufacturing PMI will be placed at the top of the pile...

Today, the US consumer confidence index (U-Mich, preliminary data) is due to be released at 16:00. This is also a high-impact indicator, in the event of a deviation from the consensus, in an economy where consumption is the main driver of national wealth creation. In the immediate future, the final consumer price indices for August in the Eurozone have not moved away from the initial estimates. Namely, in data adjusted for volatile items (food, energy, alcohol and tobacco), prices rose by 4.4% on an annualised basis.

At midday on the foreign exchange market, the euro was trading at around $0.9958.

KEY CHART ELEMENTS
The move back below parity with the dollar is symbolic. It reinforces the bearish nature of the underlying bias. Especially since it is following the formation of two consecutive high shadows above the 50-day moving average (in orange), that volatility has increased. This underlying trend line is definitely a reliable and valuable dynamic resistance level. For the time being, we are witnessing a short pullback on the pair.

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 $0.9961. Our bearish scenario price target is $0.9701. In order to preserve the capital invested, we advise you to position a protective stop at $1.0101.

The expected return on this forex strategy is 260 pips and the risk of loss is 140 pips.