EUR/USD: what do China and today's NFP report have in store?

While the basic bearish bias on the EUR/USD remained, reinforced by the content of Wednesday's FOMC press conference, the single currency managed to gain a few pips this morning, as did all the risk asset classes in the wake of new hopes of easing the restrictions linked to the Covid-19 epidemic.

On Wednesday, the Fed Funds saw their rent raised by 75 basis points, to 4.00%, as widely expected. What weighed in, however, was the clearly stated willingness to push back the idea of a pause in the monetary tightening process (an option deemed too "premature") as well as the clear warning about the prospects of reaching "rate neutral". The objective of precisely quantifying the latter is still delicate. In any case, it exceeded 5% after this monetary deadline.

Sweeping aside the scenario of a pause, the Fed "opens the door to more modest rate hikes, but without giving the impression of being dovish", for Chris Scherrman, US economist, DWS. "With policy rates currently between 3.75% and 4%, monetary policy is in de facto tightening territory. The Fed may want to explore this territory cautiously and may bring markets into the tightening zone before considering no further rate hikes."

U.S. employment will be in the spotlight this Friday with the monthly federal report (NFP) at 13:30 central European time. This is an opportunity for the Fed (and traders!) to once again take the temperature of the tensions in the labor market. This week's tensions are confirmed by the new job offers (JOLTS), the ADP survey, and the weekly unemployment benefit registrations. Naturally, there is a mechanical correlation between tight employment and price dynamics.

Right now, the pair is trading at  $0.9872.

KEY CHART ELEMENTS

With significant volatility, 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. The main issue now is positioning relative to the 50-day moving average (in orange). Knowing that the last green body dates from the "session" of 26/10, and that this trend line is in phase of reaffirmation of its negative slope, we will speak about false exit and reintegration. The bearish message is reinforced.

MEDIUM TERM FORECAST

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

Our entry point is $0.9792. The price target of our bearish scenario is $0.9401. In order to preserve the capital invested, we advise you to position a protective stop at $0.9891.

The expected return on this forex strategy is 391 pips and the risk of loss is 99 pips.