EUR/USD: the pressure remains on the Euro

Excitement is still palpable on the EUR/USD, one of the reference barometers of risk appetite on the financial markets, as the conclusions of a Council of Governors of the ECB (this Thursday) approach and a Fed Monetary Policy Committee (FOMC) meeting next week.

The issue is twofold:

1) Refine the rate increase trajectories on both sides of the Atlantic, or if necessary, try to assess whether terminal rates have already been reached.

2) Imagine how high rates will remain for a long time, given the capacity of the main economic centers of the planet to land more or less gently, after long months of very restrictive monetary policy.

“Anything that goes in the direction of a labor market that is difficult to relax, alongside price components that are resilient to the slowdown, worries the markets because it potentially presages meetings of the Fed and the ECB in a still hawkish tone ", says Alex Baradez (IG France).

As for Germany, in any case, already technically in recession, confidence in its economy, the first in the Euro Zone, is contracting, despite a slight lull on the ZEW indicator, published this morning slightly at -above expectations, although in negative territory.

Professor Achim Wambach provided the following insights, following the disclosure of the score of -11.3 this month: "This development puts into perspective the slight improvement in expectations regarding Germany's economic situation over the next six months. Germany's brighter economic outlook aligns with a significantly more optimistic view of developments in international stock markets. This is due, at least in part, to the growing proportion of respondents who expect stable interest rates in the Eurozone and the United States. In addition, experts expect further easing of China's interest rate policy."

From -12.2 last month, the score rose to -11.3, compared to pessimistic expectations of -15.1.

Regarding China, the support of encouraging statistics, particularly on price dynamics, suggests that the recovery measures taken very recently by Beijing are already bearing fruit.

To follow with the greatest attention tomorrow with US consumer prices at 14:30 (European time).

Right now, the EUR/USD is trading at $1.0717.

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 $1.0721. 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 $1.0831.

The expected profitability of this strategy is 285 pips and the risk of loss is 110 pips.