EUR/USD: What is worth $31,400,000,000,000?

The Euro, one of the most reliable barometers of risk appetite in the financial markets, remained in a short-term downward trend against the Dollar, with traders remaining nervously awaiting concrete and significant progress in the negotiations in the US Congress on the issue of raising the debt ceiling. Public debt evaluated as a reminder by the Treasury at $31,400 billion. "This is the ceiling [...] authorized for the Biden administration, beyond that, as already 78 times since 1960, all administrations stop and only restart if the ceiling is raised", note the strategists of Credit Mutuel AM.

"For that, you need a positive vote from both chambers (Senate and House of Representatives), but they are both in the hands of the Republicans. The negotiation promises to be difficult and the suspense can last until the last minute (the June 1). But in the end, everything will be fine."

For Matt Miller, political economist at the discreet asset management juggernaut Capital Group, nuance: "This situation could lead to an unprecedented blockage, and in any case at least as serious as that of 2011."

That year, Standard & Poor's downgraded the United States' rating from AAA (maximum rating) to AA+ (still in effect to this day), a decision motivated by fears linked to the federal government's budget deficit, growing long-term debt burden and political wrangling over raising the debt ceiling.

"The lesson to be learned from 2011, but also from 2013 – where the federal administration again found itself at an impasse – is that while these events can destabilize the markets for several weeks, even for several months, the data shows that they rarely have a prolonged impact on investors, explains Matt Miller. Provided of course that a reasonable solution is found".

But negotiations between Democratic and Republican leaders in Congress have stalled since the second half of last week.

Right now, the EUR/USD is trading at $1.08.

KEY GRAPHIC ELEMENTS
The identified and fully validated ascending channel exit is accompanied by a triple top structure (04/14, 04/26, 05/04)*, which supports our bearish scenario on the flagship currency pair. We are now monitoring the relative momentum of the moving averages, keeping in mind that the price/RSI divergence has already sent a pessimistic message. If the 20-day moving average (in dark blue) were to cut the trajectory of its 50-day counterpart (in orange) downwards, the bearish message would come out stronger. This technical event is imminent.

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

Our entry point is at $1.0825. The price target of our bearish scenario is at $1.0551. To preserve the invested capital, we advise you to position a protective stop at $1.0921.

The expected return of this forex strategy is 274 pips and the risk of loss is 96 pips.