EUR/USD: a temporary paralysis following Friday's NFP report

The EUR/USD seems almost frozen ahead of Friday's release of a highly (too?) robust NFP report on employment, and ahead of the release of consumer price indexes in the US for the month of October.

"Overall, there are signs that the U.S. economy is slowing, although the labour market remains robust, particularly in the service sector. This may not be enough "bad news" to cause the FED to pause its interest rate hike cycle, but perhaps enough to cause it to slow. The case for a slowdown is much clearer for the Eurozone, where a significant contraction in activity is already in place," says Warren Hylan, Emerging Markets Portfolio Manager at Muzinich.

On Monday, the growing risks of major economic hubs in the Eurozone going into recession dampened risk appetite, especially with the release of a Sentix investor confidence index at its lowest level since May 2020. The barometer indicator sank to -38.2, missing expectations despite being pessimistic, at the lowest since May 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 and terse commentary accompanying the publication of the behavioral finance firm...

The Japanese bank Nomura agrees, for whom "there is little room for respite in the future", and remains pessimistic about the dynamics of the index, materializing a reminder of an "imminent recession" scenario. 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 in February 2023."

Right now, the pair is trading at $0.9710.

KEY CHART ELEMENTS

We are resuming our bearish work on the EUR/USD, 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, which mechanically increases the quality of 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 $0.9703. Our bearish scenario price target is $0.9401. In order to preserve the capital invested, we advise you to position a protective stop at $0.9805.

The expected return on this strategy is 302 pips and the risk of loss is 102 pips.