EUR/USD: expectations of a diamond chart pattern

Between hopes of a slowdown in the pace of Fed Funds increases and divergent macroeconomic publications, the dollar stabilised in its downward movement against a euro that benefited from a relaxation of anti-Covid measures in China. On Friday, the main event for traders was the federal NFP report on employment, which showed recurring tensions.

In detail, while the unemployment rate remained stable at 3.8% of the active population, the number of new jobs created in the private sector (excluding agriculture) remained high, at 264,500 new units, well above the target; and above all, wage dynamics (+0.5% in monthly terms) show no sign of abating.

These figures immediately followed the publication, the day before, of inflation (PCE) confirming a slowdown in price increases.

On the European monetary policy front, the single currency remains supported this morning by rather hawkish comments from Gabriel Makhlouf, Governor of the Central Bank of Ireland and member of the ECB Governing Council. Top ECB officials are attending an event hosted by the IMF Singapore Regional Institute and South East Asian central banks in Cambodia on Monday.

No surprises regarding the final Eurozone services PMI for November, which deviates only slightly from the preliminary data, at 48.9 points. However, the Sentix Eurozone Investor Confidence Index rose nicely to -20.0.

Manfred Hübner, Director of the Sentix Institute, a specialist in behavioural finance, provided the following additional insights: "The latest Sentix economic data are surprisingly improving again. Investors are spreading the hope that thanks to a mild winter, sufficient gas storage and a possible inflation spike, the economic slowdown has also passed its peak. Internationally, there is also a more subdued tone from the US Federal Reserve, which is hinting at the prospect of "only" 50 basis points of interest rate hikes in December. And in China, protests finally seem to be accelerating the end of anti-Covid restrictive measures. Will the recession end before it has really begun?"

Right now, the pair is trading at $1.0589.

KEY CHART ELEMENTS
Volatility remains high on the spot market, which is tracing a broad consolidation, the structure of which remains to be defined, around $1.0300. A continuation of these nervous oscillations is the preferred option, a scenario that is not very attractive for taking positions. We prefer to stay out of the spot for the time being. The limits of the flag are clearly identified, between $1.0240 and $1.05. The formation, in the long term, of a diamond pattern is not excluded.

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 $1.0557. The price target of our bearish scenario is $1.0101. In order to preserve the capital invested, we advise you to set a protective stop at $1.0676.

The expected return on this strategy is 456 pips and the risk of loss is 119 pips.