EUR/USD: Germany and China are irritating traders

A faithful barometer of the appetite for risk on the financial markets, the EUR/USD continued its downward movement against the safe-haven USD, in a context of tangible signs of weakness in global economic activity. After digesting the report on American employment, published Friday, currency traders yesterday took note of the Sentix index of investor confidence in the Euro Zone, down sharply to -21.4, missing expectations that were nevertheless pessimistic.

“The situation in Germany remains particularly precarious,” we can read in a sharp comment accompanying the publication. The Sentix measured for this publication "the lowest values since July 2020, when the economy was slowed by the first coronavirus lockdown. Germany is also weighing heavily on the euro zone economy as a whole. The recession is progressing. But even in the United States, which has so far held up well and defied the Fed's restrictive policy, economic data is in sharp decline. The tipping point of a global recession is less distant than we think. might think so."

In China, the country's economic situation is also the subject of concern after a slowdown in services activity last month. The PMI-Caixin services index actually fell to 51.9 points in August, after 54 in July. Beijing may have announced support measures, particularly in the very strategic real estate sector, as well as a reduction in taxes on stock market transactions, "for the moment these measures look more like measures", says Thomas Giudici , head of bond management at Auris Gestion.

"Xi Jinping, who advocates financial discipline, finds himself blocked by his desire not to fall back into the excesses of past debt. Added to this problem is that of the currency, the renminbi having corrected sharply against the dollar while China seeks to further push its use internationally. If China naturally has the means to support its economy through large-scale measures, for the moment it seems to be taking small steps."

Right now, the EUR/USD is trading at $1.0725.

KEY GRAPHIC ELEMENTS
The almost complete retracement of July's gains 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 the month of July. The outcome of the ongoing test of the 50-day moving average (in orange) will be decisive. The bearish message takes shape with the break - now validated - of the 50-day moving average by its 20-day counterpart (in dark blue), at an important angle. The short position will be retained as long as the latter gravitates below the first.

MEDIUM TERM FORECAST
Considering the key graphical factors that we have mentioned, our opinion is negative in the medium term on the EUR/USD.

Our entry point is at $1.0741. The price target for our bearish scenario is at $1.0436. To preserve the invested capital, we advise you to position a protective stop at $1.0861.

The expected profitability of this forex strategy is 305 pips and the risk of loss is 120 pips.