EUR/USD: towards a test of the $1.0550 level

"PMI" activity indicators for services, in final data for May, a little less optimistic than the first estimates, push the Euro back into the red at the start of the week, in an atmosphere not conducive to taking risk in the financial markets. This PMI (for Purchasing Managers Index) comes out at 55 for the whole of the Euro Zone and at 57.3 for Germany.

Moreover, the end of the episode of the American debt ceiling, after the vote on the budgetary counterparties in the Senate, is giving the greenback some momentum. However, the equation remains complex ahead of the Fed's Monetary Policy Committee meetings in June and July.

Will Gerlach, Regional Director France and United Kingdom. iBanFirst, thinks "the Fed should take a break in June, as Powell has indicated. If the interim economic data is quite strong, the Fed will raise rates, which other institutions have also said they want to do. The short-term pace is more uncertain than usual, which should induce greater volatility in exchange rates.Keep in mind that the Fed knows full well that it is not easy to raise rates during a year of presidential elections and rising unemployment (2024)."

An unemployment rate which has already started to rise, stronger than expected, as shown by the confusing content of the NFP (Non Farm Payrolls) report for the month of May, published on Friday. Currency traders have therefore noted a significant increase in the unemployment rate from 3.3% to 3.6% of the working population, proof of "efficiency", with the necessary quotation marks in the restrictive policy of the Fed . This brake is finally palpable on employment, the dynamics of rising wages remaining stable moreover... But - because there is a but - the American economy would have created nearly 335,000 jobs in the sector private (non-agricultural), exploding the target. What give new nodes to the brain of the Fed, whose obsession is the runaway spiral prices wages, hitherto avoided.

Right now, the EUR/USD is trading at $1.0696.
KEY GRAPHIC ELEMENTS

The 20-day moving average (in dark blue) has just cut downwards the trajectory of its 50-day counterpart (in orange): the bearish message emerges strengthened. Note the importance of the crossing angle of these trend curves. Next intermediate threshold identified: $1.0550, a breach of which would have consequences in terms of occasional downward acceleration. The short position will be held as long as the 20-day moving average gravitates below its 50-day counterpart (in orange).

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.

Our entry point is at $1.0684. The price target of our bearish scenario is at $1.0436. To preserve the invested capital, we advise you to position a protective stop at $1.0761.

The expected return of this strategy is 248 pips and the risk of loss is 77 pips.