EUR/USD: a textbook pullback is in place

The Euro/Dollar currency pair has just completed a perfect pullback (chart rejection) to the area of perfect parity, at a level of convergence with its 50-day moving average (in orange), the underlying trend line that has acted as chart resistance for many months. The technical rebound of the Euro, fueled by a lull in the interest rate markets, and therefore a renewed appetite for equities, is already being thwarted.

This lull in the rate markets has been particularly noticeable in 10-year Treasuries, especially since Monday's release of the ISM manufacturing activity indicator. clearly missed expectations, at 51 compared to 52.7 the previous month. "The "prices paid" component fell back to its lowest level since June 2020" says Alex Barade (IG France). "And the markets were sensitive to this. [...] This does not mean that the equity markets will immediately move forward again without looking back, as it will take more price data to confirm a trend slowdown." So we won't have to count on a sharp bullish extension from Wall Street, the DAX and the CAC to support the single currency.

Another element to watch closely this week is the degree of tension on US employment, a leading indicator of inflation to which the Fed is naturally very sensitive. We will have a decisive meeting on Friday with the NFP (Non Farm Payrolls) report, the traditional monthly report on the state of health of employment in the US.

Right now, the pair is trading at $0.9914.

KEY CHART ELEMENTS

We are resuming our bearish work on the Euro/Dollar currency pair, with a suitable entry point, following a pullback on parity and 50-day moving average. With the advantage of having a clearly defined stop loss level.

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 $0.9908. Our bearish scenario price target is $0.9501. 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 407 pips and the risk of loss is 93 pips.