EUR/USD: the middle of December will be decisive

Against a backdrop of persistent questions about the pace of Fed Funds hikes, even as major monetary deadlines approach, the EUR/USD consolidated, with the single currency failing to capitalise on the planned end of the 0-Covid policy in China. Macroeconomic signals continue to send divergent, unclear signals on both sides of the Atlantic, suggesting that the US economy is not slowing down (ISM services, NFP) and that the EU economy, particularly Germany, may already be in recession; we will have confirmation of this early 2023.

On the question of a possible inflation peak behind us in the Eurozone, Nomura's strategists are rather confident, extrapolating the latest results of the Sentix survey, a firm specialised in behavioural finance. "This is probably due to a continued improvement in the energy supply situation this month and signs that inflation may have peaked." Recall that the Sentix index, while remaining in negative territory, jumped nearly 10 points. The Japanese bank's strategists believe that "this will give the ECB more confidence to opt for a 75 basis point rate hike in December."

The ECB concludes its next Governing Council meeting on 15/12. The Fed concludes its next Monetary Policy Committee (FOMC) on 14 December. Both dates are to be checked off in red on traders' calendars.

Right now, the EUR/USD is trading at $1.0501.

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

Our entry point is $1.0532. The price target of our bearish scenario is $1.0101. In order to preserve the capital invested, we advise you to place a protective stop at $1.0636.

The expected return on this forex strategy is 431 pips and the risk of loss is 104 pips.