EUR/USD: Last week's weekly candle delivers a negative message

Last week, ultra volatile on the EUR/USD, will have given birth to a reversal candle with a very significant upper shadow. The hawkish messages, in the remarks and/or the rate hikes, whether for the Fed, the ECB or the Bank of England, will have called currency traders to order on the necessary fight against persistent inflation. At the same time, signs of an economic slowdown have multiplied, on both sides of the Atlantic with the PMIs, as well as in China, where the authorities' lack of recovery measures is a source of tension, penalizing for so-called "at risk" assets.

“Despite clearly negative supply shocks, central banks have been keen to rely on inflation. With official rates having already risen significantly, plans for future tightening are more nuanced,” reads the statement. weekly report on the European economic situation of Nomura.

The atmosphere was particularly weighed down by the publication on Friday of a battery of PMI activity indicators in Europe. All targets are completely missed. In particular, the German industrial component stands at 40.9, the lowest since... May 2020. The services component in France, expected at 52.3, collapses to 47.9. In the US, equivalent indicators were published, with the key unpleasant surprises as well, particularly on the front of its industrial component, which came out at 46.2. the "composite" PMI index fell back to 52.9 at least in June, also marking a slowdown compared to May (54.4).

This morning, the IFO business climate index in Germany, expected to drop to 90.6, actually fell further, to 88.5, the lowest since January. Remember that the leading economy in the Euro Zone has technically entered into recession. "Investors' economic expectations clearly reflect their pessimism. On the companies themselves, the prospects felt by respondents are even worse. It is primarily the weakness of the manufacturing sector that is plunging the German economy into troubled waters" , was to be read on the press release accompanying the results of the investigation.

The agenda will become more dense tomorrow with durable goods orders in the United States and the consumer confidence index (Conference Board).

Right now, the EUR/USD is trading at $1.0917.

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. On the contrary, the spot retraced this incursion in a handful of hours. Hence a very unappealing weekly candle (S25).

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 $1.0906. 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 $1.1001.

The expected return of this forex strategy is 355 pips and the risk of loss is 95 pips.