EUR/USD: ingredients aren't looking good for the euro

In a climate of risk aversion, and speculation of a 100 basis point Fed Funds hike on Wednesday, the pair pair fell back below perfect parity against the USD, on the eve of a week that will be centred around two major meetings: the Monetary Policy Committee on Wednesday and a slew of activity indicators (PMI) on Friday.

The FOMC will be scrutinised all the more as the latest US inflation figures were particularly disappointing. "The persistence of core inflation [adjusted for volatile elements] forces the Fed to continue its giant steps," according to Dorval Asset Management's strategists. [The markets] "are finally beginning to better understand the reaction function of central banks". They are now expecting a rate of 4.5% for the Fed in March 2023, and 2.5% for the ECB.

On Friday, there were some important figures in the statistics, but without any impact in this case, as there was no deviation from the target. The final consumer price indexes for August in the Eurozone did not deviate from the first estimates. Adjusted for volatile items (food, energy, alcohol and tobacco), prices rose by an annualised 4.4%. In the US, the consumer confidence index (U-Mich, preliminary data) rose slightly to 59.4.

At midday on the foreign exchange market, the euro was trading at around $0.9972.

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 $0.9972. Our bearish scenario price target is $0.9701. In order to preserve the capital invested, we advise you to set a protective stop at $1.0101.

The expected return on this forex strategy is 271 pips and the risk of loss is 129 pips.