EUR/USD: the USD's refuge status is confirmed

The bearish bias in the EUR/USD remained unchanged on Monday, after recent releases (U-Mich, NFP, CPI) in the US, which combined clearly supported the scenario of a continuation of a bellicose monetary policy from the Federal Reserve (Fed) without pause. This further increases the potential for a "remuneration" gap between the two spot currencies, with the euro remaining under pressure as a "risk" asset, in the event of a recession in the main economic centres of the monetary union. The Sentix index of investor confidence illustrated this coldly last week, coming out at its lowest since May 2020.

On Friday, the statistics section showed that retail sales in the US were up by 0.1%, above the consensus, in monthly terms. The consumer confidence index (U-Mich, preliminary data), regained a few points at 59.9, slightly exceeding the consensus.

According to the strategists at Pictet Wealth Management, "persistent inflation will likely lead to another 75bp rate hike at the November 2 FOMC meeting, bringing the average federal funds rate to 3.87%" [...] but the Fed will then widen its horizons.

'[It] may reassess the impact of likely weakening labour market momentum and deteriorating market liquidity - so a pause in rate hikes in December is possible if economic data deteriorates sharply while financial conditions tighten further."

However, preliminary data from the University of Michigan's consumer confidence index came out firmer than expected on Friday, despite their rise in inflation expectations. This has led to a market sentiment that is not very favourable to risky assets, against a backdrop of fears of entering an overheated economic scenario.

Right now, the pair is trading at $0.9783.

KEY CHART ELEMENTS
We are resuming our bearish work on the EUR/USD currency pair, with a suitable entry point, following a pullback on parity and a 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 $0.9753. 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 352 pips and the risk of loss is 138 pips.