EUR/USD: an update on the pair

In the absence of any surprises (good or bad) contained in Wednesday's Fed Minutes, the EUR/USD managed to gain a few pips, after the formation of two consecutive star doji.

Without any real surprise, these Minutes clearly suggested that the Fed members were in agreement on the need for further significant tightening to combat chronic high inflation, even if it means weighing heavily on economic activity. "Such a tightening of monetary and financial conditions, if it were to continue at the current pace, would obviously not be without risk for growth and financial stability on a global scale," reads the latest COFACE barometer entitled "Cold snap for the world economy".

"With fingers pointed at them - sometimes wrongly - for letting the inflation genie out of the bottle, central banks now risk dragging the global economy into a major slowdown or even a recession."

Recall the release earlier this week of a Sentix investor confidence index at its lowest since May 2020. The barometer indicator sank to -38.2, missing expectations despite being pessimistic, at the lowest since May 2020.

Japanese bank Nomura agrees, saying "there is little room for respite in the future" and remains pessimistic about the index's momentum, signalling 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 $0.9779.

KEY CHART ELEMENTS
We are resuming our bearish work on the 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 $0.9729. 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 strategy is 328 pips and the risk of loss is 162 pips.