EUR/USD: what's new with the pair?

The dynamics of risky assets, including equities, oil and the euro, converged during the first part of the week, taking advantage of a lull in interest rates to undertake a sharp reaction, while remaining anchored in a basic bearish trend. Classically, in a downtrend, and when approaching an abdication movement, the entry into erratic phases, with succession of short episodes of very strong rises and very strong falls, is observed. We are approaching this phase, especially on the single currency.

"Volatility and uncertainty are generated by a combination of important economic data, escalating political agendas and hawkish communications from central banks," says Warren Hylan, Portfolio Manager specialised in emerging markets at Muzinich, who relies on behavioral analysis: "traders have lost the anchor of forecasts and that they have to adjust their investment expectations to their worst fears or greed."

In terms of Monday's stats yesterday, let's remember the disappointment caused by the publication of the final German industrial PMI, which came out at 47.9, compared with the first estimate of 48.2. This indicator alone points to the imminent entry into recession of the Eurozone's largest economy. Phil Smith, Economics Associate Director at S&P Global Market Intelligence, comments: "The surge in energy prices has put an end to the slowdown in input cost inflation seen in recent months, causing it to accelerate again in September. If demand continues to fall in the coming month as companies expect, higher costs will inevitably become more and more difficult, mechanically squeezing margins. Indeed, we are already receiving reports of some manufacturers trying to improve cash flow by depleting purchase inventory."

ON Tuesday, the Eurozone producer price index came out with a monthly increase of 4.9% in August, in line with expectations. Later today are the ADP survey, followed by unemployment benefit registrations on Thursday and the monthly federal NFP report on Friday.

Right now, the pair is trading at $0.9976.

KEY CHART ELEMENTS

The Euro's contentious rebound, which developed on September 28 and 29 in a highly volatile environment, is already showing signs of running out of steam as it approaches the 20-day moving average (in dark blue). We will prefer to stay out of the spot as long as the signs of return to the bearish trend are not clearer. In particular with regard to the positioning of the 50-day moving average (in orange), a particularly valuable benchmark since mid-February.

MEDIUM-TERM FORECAST

Given the key chart factors we have mentioned, our medium-term view on the EUR/USD is neutral.

We will maintain this neutral view as long as the EUR/USD is positioned between support at $0.95 USD and resistance at $1.