EUR/USD: the dollar benefits from risk aversion

The cocktail has been around more or less since the beginning of the week. A tension on long rates, induced by firm crude oil prices, and a feeling that even if the Fed is willing to take a break on Fed Funds, that it will keep them high for a very long time, weighs on appetite to risk in financial markets. The Dollar (refuge) mechanically regains its colors - green, naturally! Note that the week of the Euro against the Dollar very much resembles that of the DAX30 or the CAC40, the main equity indices in the Euro Zone.

In terms of Thursday stats, weekly registrations for unemployment benefits contracted to 215,000, far below expectations, and close to the level of 199,000 which was very often observed during the post-Covid recovery period. In the euro zone, gross domestic product (GDP) was revised downwards in the second quarter, to 0.1% compared to 0.4% previously. In China, the contraction of exports in August for the fourth consecutive month is part of a long series of poor economic indicators for the world's second largest economy. “We believe that the economy will enter recession during the second half of the year,” says Capital Economics.

However, the market seems to rule out a price/wage boom across the Atlantic, which has so far been fortunately avoided. And this is due to the first, still timid, signs of a reduction in tensions on the job market. "Before jumping to conclusions, however, it is worth keeping in mind that monthly U.S. employment data can be capricious, seasonal adjustments are delicate, and even aggregate data are subject to many variations. revisions, often very important" nuance Christian Scherrmann, US Economist DWS. “For example, August hiring was strong with 187,000 jobs created, but a downward revision of 110,000 jobs over the past two months suggests the momentum is a little weaker than initially expected ."

US consumer credits to be announced tonight at 21:00 (CET).

Right now, the EUR/USD is trading at $1.0730.

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 a significant angle. The short position will be retained as long as the latter gravitates below the first. The advantage of this investment plan is the discipline that it inherently induces.

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 $1.0701. 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 $1.0793.

The expected profitability of this strategy is 265 pips and the risk of loss is 92 pips.