EUR/USD: the pair fights a bleak backdrop

The EUR/USD continued to lose ground on the eve of a busy week on the statistical front (see below), under the cumulative effect of the rise of a notch in geopolitical tensions since the humiliation suffered by Putin's humiliation after the damage to the Russian-Crimean bridge, and Friday's federal employment report, showing tensions that have so far ruled out a pause in the Fed's hawkish monetary policy.

As for the main findings of the NFP (Non Farm Payrolls), the momentum of wage growth did not get out of hand (+0.25% in monthly terms in September), but the increase in job creation in the private sector (excluding the agricultural sector) surprised by its pace, at +264,000. The unemployment rate - which was not in the Fed's plans either - fell sharply to 3.6% of the labour force, against a consensus of 3.8%. The change in total non-farm payroll employment for July was revised up by 10,000, from +525,000 to +535,000, and the change for August remained at +316,000. After revision, the combined July and August employment gains were 10,000 higher than previously reported.

"The risk of a hard landing for the economy caused by too much tightening is increasing and that for the next few weeks and months, market behaviour will be dictated by the evolution of inflation," say the strategists at Credit Mutuel AM. This inflation would become even more acute if the US enters a price/wage spiral, a scenario that has not yet been completely ruled out.

As we saw in the preamble, the week will be dense and rich in terms of statistics, with, among other publications capable of shifting the EUR/USD, Italian production today, the Fed Minutes on Wednesday, US consumer prices on Thursday, and the consumer confidence index (U-Mich) on Friday.

In the immediate term, the Sentix Eurozone Investor Confidence Index, released this morning, sank to -38.2, missing pessimistic expectations, at the lowest since June 2020. "Continuing uncertainties over the winter gas and energy situation have not abated due to the Nordstream pipeline attack. In addition to the economic worries, there is now also a growing likelihood of an escalation of the military conflict in Ukraine. Overall, there is little reason for hope," reads the cold, terse commentary accompanying the behavioural finance firm's publication.

Right now, the pair is trading at $0.9711.

KEY CHART ELEMENTS
We are resuming our bearish work on the Euro/Dollar currency pair, with a suitable entry point, following a pullback on the parity and 50-day moving average. With the advantage of having a clearly defined stop loss level, which mechanically increases the quality of the money management associated with the operation.

MEDIUM-TERM FORECAST
In view of the key chart factors we have mentioned, our medium-term view on the EUR/USD is negative.

Our entry point is $0.9706. Our bearish scenario price target is $0.9401. In order to preserve the capital invested, we advise you to set a protective stop at $0.9891.

The expected return on this forex strategy is 305 pips and the risk of loss is 185 pips.