EUR/USD: intense activity at the parity level

The EUR/USD was symbolically back below the perfect parity level the day after the outcome of a Governing Council meeting which, if it did not produce any surprises, was a preparation of the minds for the last meeting of this trying year, in December. Key rates rose by 75 basis points to 2.00%.

"It is true that ECB President Christine Lagarde avoided talking about the neutral interest rate at the press conference," notes Ulrike Kastens, European economist, DWS.

"However, given the high inflation rates, she did not rule out the possibility that the central bank would have to raise the policy rate above a neutral interest rate level in order to meet the ECB's inflation target again. On the other hand, no statement was made on the level of the next interest rate hike in December. This will depend primarily on the extent of the economic downturn. However, it is likely to be at least 50 basis points."

As a reminder, the neutral rate is a construct: it is the policy rate beyond which the ECB, or any other central bank for that matter, causes a slowdown in activity.

In the meantime, traders have just taken note of the preliminary GDP data for Q3 in Germany, up 0.25% on a quarterly basis, well above expectations made pessimistic since the Eurozone's largest economy confirmed that it would enter a recession at the turn of the year.

Next on the US front, the PCE consumer price index, household spending and income at 14:30, pending home sales and the consumer confidence index (U-Mich, revised data, at 16:00).

Next week will be very statistically oriented on the US employment front, with Friday's monthly NFP (Non Farm Payrolls) report for October. Forex traders will have the traditional "preview" on Wednesday, with the very closely watched (because reliable) survey by the private human resources firm ADP. This will be an opportunity to measure precisely the degree of tension on employment and wages, dials followed very closely by the Fed in the construction of its monetary policy.

RIght now, the pair is trading at $0.9952.

KEY CHART ELEMENTS

In a highly volatile environment, the currency pair has successively traced two marubozus in daily data, of equal magnitude, and comparable level, around the perfect parity, which continues to constitute a pivot level in the immediate future.

MEDIUM-TERM FORECAST

Given the key chart factors we have mentioned, our medium-term view on the EUR/USD is negative.

Our entry point is $0.9954. Our bearish scenario price target is $0.9666. In order to preserve the capital invested, we advise you to position a protective stop at $1.0095.

The expected return on this forex strategy is 288 pips and the risk of loss is 141 pips.