EUR/USD: profit-taking on the euro to kick off the year

The euro took profits against the dollar, forcing us to cut our bullish positions, in a market that is wondering about the seriousness and consequences of the health situation in China, weighing on the risk asset that is the single currency.

"The impact on the Chinese economy is immediate as we are talking about several hundred million new cases in a few days" says Thomas Giudici (AURIS Gestion). The activity indicators published for the month of December were down sharply and are lower than those of April, when Shanghai was strictly contained.

The inflationary theme will also continue to focus the attention of traders, while "central bankers do not yet seem ready to loosen the stranglehold of restrictive monetary policy."

The euro held up well yesterday, albeit without any benchmarks from Wall Street, and with no surprises on the final data of the barometer indicators of industrial activity in the main economic poles of the Eurozone. For the monetary union as a whole, the score for December was 47.9, in line with initial estimates.

Chris Williams, Chief Business Economist at S&P Global Market Intelligence, provided the following insights: "As for the year ahead, in addition to monitoring potential changes in fiscal and monetary policy, at the top of the list of issues manufacturers need to watch this year is the impact on supply chains and raw material prices of health policy in China, as well as the possibility of sharp swings in energy prices related to geopolitical developments, with the war in Ukraine remaining the main threat to stability in the region."

Copious activity is expected from tomorrow with a battery of indicators, including the ISM Manufacturing PMI, JOLTS New Job Openings and the Fed Minutes.

The inflation barometers, especially on the US employment front, will be scrutinised this week. The content of the monthly report on Friday (NFP for Non Farm Payrolls) will provide valuable information. The market is expecting the unemployment rate to stabilise at 3.6% of the active population and the pace of wage increases in the private sector (excluding agriculture) to slow to a monthly rate of +0.5%.

Right now, the EUR/USD is trading at $1.0535.

KEY CHART ELEMENTS
The break of the 20-day moving average (in dark blue), which until now has served as a perfectly materialized trailing stop, requires us to cut our long positions, while waiting for a relevant entry point. However, no pronounced bearish reversal pattern has been identified.

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

We will maintain this neutral view as long as the EUR/USD is positioned between support at $1.0435 and resistance at $1.0746.