EUR/USD: Monetary meetings have been digested, all eyes are now on the PMI report

As with the equity markets, the EUR/USD began a phase of consolidation with a bearish bias, traders digesting the monetary policy decisions of the Fed and the ECB last week.

Matthieu Bailly, deputy managing director and bond manager at Octo AM sees there a perfect "continuity in their on-sight navigation, with speeches that are still just as uncertain about statistics, the effects of rate hikes, and the total absence of clear and consistent on the future, even though the markets have been hoping for several months that the FED and ECB will return to their standards of the 2010 decade and take them by the hand month after month..."

Moreover, the reference barometer of risk appetite represented by the single currency is suffering from fears about the quality of the Chinese economic recovery. "The recovery in China, as we anticipated in our latest projections, lacks momentum with the publication of economic figures very often below expectations over the last 3 months, to the point of requiring the implementation of measures to support from the authorities, such as the lowering of financing rates for banks or even the reduction of bank deposit rates", says Alex Baradez (IG France). China has just lowered 2 reference rates in an attempt to support demand.

The week started very calmly on the publications front (NAHB for US residential real estate Monday, housing starts and building permits Tuesday). But the high point will undoubtedly be reached on Friday with the Flash PMIs, that is to say the very first estimates of activity indicators, calculated after analysis of a survey of purchasing managers, for the month in progress. The opportunity to refine more precisely the degrees of slowdown of the main economies of the Euro Zone (Germany, France, Italy, Spain).

Right now, the EUR/USD is trading at $1.0916.

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 with discipline as long as the 20-day moving average gravitates below its 50-day counterpart (in orange). Immediately a bevel (wedge) concentrates the energy of the spot. It just made a foray above, with no formal sign of a bullish reversal.

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 $1.0931. The price target of our bearish scenario is at $1.0785. To preserve the invested capital, we advise you to position a protective stop at $1.1005.

The expected return of this forex strategy is 146 pips and the risk of loss is 74 pips.