EUR/USD: Correction of 10-year Treasury Bonds

It's a paradoxical situation seeing the euro, a traditional indicator of risk appetite, rebound frankly since the end of last week, even though the atmosphere on the financial markets is suddenly refreshed. We have to take the problem upside down, in the immediate term, and ask ourselves why the dollar is losing ground.

Encouraged by the particularly firm and offensive tone adopted by J Powell at the beginning of last week in his semi-annual hearing before the Parliamentarians, the greenback had benefited from an increase in the probability of seeing the yield of the Fed Funds increase by 50 basis points at the issue of the March FOMC.

But these probabilities have gradually withered with, on the one hand, the content of the federal report on employment, certain components of which have reassured on the absence of entry into a price/wage spiral, and above all by the debacle of two American banking establishments weakened by the sale at a loss of the bond portfolio in compensation for the drop in deposits.

The markets took note of the statistical highlight of the week, namely the US federal employment report (NFP report, for Non Farm Payrolls). The report, particularly awaited after the 218,000 job creations in January (revised to 505,000) highlighted 310,000 new creations in the private sector (excluding agriculture) in February, significantly above expectations. A relief is however noticeable concerning the dynamics of wages (+0.2%) and the progression of the unemployment rate to 3.7% of the active population (target however stable at 3.4%). What militate for "a more cautious increase" of the federal rates, according to the terms of the strategists of ABN AMRO.

As for the American banks, the news of which two of them brought back very bad memories dating from fifteen years ago, the American authorities took action during the weekend to avoid a bank panic at the following the setbacks of Silicon Valley Bank and Signature Bank. But the market nevertheless fears that other small banks could in turn be hit.

The 10-year Treasuries, the yield on long-term US sovereign bonds, corrected sharply, below 3.59%, whereas they passed a head above 4% at the start of the month.

No major statistical figures are on the agenda for Monday. Agenda which will become more dense tomorrow with the various consumer price indices in the United States.

Right now, the EUR/USD is trading at $1.0730.

KEY GRAPHIC ELEMENTS
It is a very clear pullback that is taking shape on the EUR/USD, with the formation (still to be validated) of a significant upper shadow at the level of the 50-day moving average (in orange), which is inflected on the decline.

MEDIUM TERM FORECAST
In view of the key graphic factors that we've mentioned, our opinion is negative in the medium term on the EUR/USD's parity.

Our entry point is at $1.0669. The price target of our bearish scenario is at $1.0239. To preserve the invested capital, we advise you to position a protective stop at $1.0801.

The expected return of this forex strategy is 430 pips and the risk of loss is 132 pips.