EUR/USD: good news is bad news?

The euro, one of the most reliable barometers of risk appetite on the financial markets, continues to suffer against the "safe haven dollar" as the Fed Minutes (today at 20:00 central European time) approach, which will inevitably take on a particular colouring after the publication of particularly dynamic and solid US employment figures on Friday. "Once again, in this very peculiar period, "good news is bad news", says Thomas Giudici, co-head of bond management at Auris Gestion, meaning that any good news on the health of the US economy is another step towards the continuation of a bellicose monetary policy.

"The odds of a 75bp rate hike for the November FOMC, which would be the fourth in a row, are close to 80% and 20% for a 50bp hike," notes Vincent Boy (IG France).

On Monday, the growing risks of seeing the main economic centres in the Eurozone go into recession penalised risk appetite, especially with the publication of a Sentix index of investor confidence at its lowest since May 2020. The barometer indicator sank to -38.2, missing pessimistic expectations, the lowest since June 2020. "Continuing uncertainties about 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," read the cold, terse commentary accompanying the behavioural finance firm's publication.

Japanese bank Nomura agrees, saying "there is little room for respite in the future", and remains pessimistic about the index's momentum, issuing reminders of "impending recession". Despite the continued deterioration in sentiment, Nomura maintains its view on the ECB. Recent comments from ECB Governing Council members clearly show that they are focused on reducing inflation to target. This confirms our view that the ECB will hike by 75 basis points at each of the next two meetings (in October and December), followed by a 25 basis point hike next February.

In Tuesday stats, the relatively good surprise on the industrial production volume in Italy, at +2.2% in August against a neutral consensus. The NFIB index of US small businesses came out flat at 92, close to the target. We will have to wait until later today (Producer Price Index, Minutes) for the week's agenda to gain in interest.

Right now the pair is trading at $0.9720.

KEY CHART ELEMENTS
We are resuming our bearish work on the EUR/USD, 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 $0.9707. Our bearish scenario price target is $0.9401. In order to preserve the capital invested, we advise you to place a protective stop at $0.9821.

The expected return on this forex strategy is 306 pips and the risk of loss is 114 pips.