EUR/USD: the weight of the retracement is too heavy

In a handful of “sessions”, the EUR/USD retraced almost all of the rise built between July 6 and 13, following a certain relief on the US inflation front. This retracement was fed last week by the degradation, by the Fitch agency, of the sovereign rating of the United States, causing a contraction in risk appetite, visible not only on equities but also on foreign exchange.

The rating agency downgraded the rating of the sovereign debt of the United States by one notch to "AA+", motivating the withdrawal of the precious from the triple A, by a "constant deterioration of the standards of governance over the last 20 years , including on tax and debt, despite June's bipartisan agreement to suspend the debt ceiling until January 2025."

The bleeding was stopped at the end of last week with the publication of the NFP (Non Farm Payrolls) report, the traditional monthly federal report on the state of health of private American employment. He reassured by the number of job creations in the private sector, once again ruling out entry into a price-wage loop. were lower than expected, at 186,000 jobs in July where analysts had expected 200,000 new hires over the period. The June balance was also revised down to 184,000 from 209,000 previously estimated. For its part, the unemployment rate fell by 0.1 point to 3.5%. The average hourly wage, on the other hand, rose by 0.4% over one month, ie an increase of 4.5% over one year. The market was hoping for a lull in hourly wages. Inflationary pressures therefore remain topical, which should push the Fed to continue its movement towards monetary normalization, despite weaker than expected job creations.

For the time being, forex traders have little to get their teeth into at the start of the week. We should nevertheless mention the Sentix index of investor confidence in the Euro Zone, which rebounded significantly, to -19. Not enough however to frankly support the currency pair. "Germany is adding fuel to the fire: the leading economy in the eurozone becomes the weakest link in the eurozone, weighs heavily on the monetary union as a whole. The component of the index for for the Germany falls for the fourth consecutive time to -30.8 points,” reads a commentary note accompanying the Sentix survey.

Right now, the pair is trading at $1.1002.

KEY GRAPHIC ELEMENTS
The almost total retracement mentioned above does not militate at this stage for a continuation of the advance of the currency pair, without formally excluding it. This retracement, by its magnitude, weakens the bullish message then delivered over a good part of July. The outcome of the ongoing test of the 50-day moving average (in orange) will be decisive.

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

We will keep this neutral opinion as long as the EUR/USD parity prices are positioned between the support at $1.0854 and the resistance at $1.1100.