EUR/USD: 10-year Treasury bills are soaring

While the yield on US 10-year government bonds passed the symbolic 4% mark - a first since 2008 - the Euro continued to fall against the dollar, the greenback benefiting from a double effect: that of its safe haven status, which is fully expressed while the risks of the US and the Eurozone entering recession are increasing, and that of its increased "remuneration" against the single currency, whose status as a "risky" currency is penalizing.

Since the last meeting, several Fed officials, such as the president of the St. Louis branch James Bullard, have insisted on the need to continue raising the key rate, even if it means causing a recession. Analysts now see the policy rate peaking around 4.5% in the coming months.

"Apart from an unlikely turnaround in the short term on the geopolitical scene, the macroeconomic context should remain fairly deteriorated with central banks that will not weaken in their monetary tightening, despite the increasing risks of a hard landing for growth," says Thomas Giudici, co-head of bond management at AURIS Gestion.

On the macroeconomic side, there was little to get excited about yesterday, as we await the US PCE prices and the final GDP data for the second quarter in the last part of the week. Note the publication, beyond expectations, of the consumer confidence index (Conference Board) at 108. In the US, the goods trade balance at 14:30 (central European time), pending home sales at 16:00, and crude oil inventories at 16:30 should be the main releases today.

At midday on the foreign exchange market, the Euro was trading at around $0.9571.

KEY CHART ELEMENTS

While volatility has exploded since the last time the pair fell below parity, this is precisely the time to be wary and avoid getting caught up in the temptation to strengthen bearish positions on the currency pair, which could trigger a counterintuitive move towards its notable 20-day moving averages (in dark blue) at any time.

MEDIUM-TERM FORECAST

Given the key chart factors we have mentioned, our medium-term view is positive on the EURUSD.

Our entry point is $0.9581. The price target of our bullish scenario is $0.9889. In order to preserve the capital invested, we advise you to position a protective stop at $0.9499.

The expected return on this forex strategy is 308 pips and the risk of loss is 82 pips.