EUR/USD: the trend remains in favour of the dollar

Against a backdrop of continued appreciation of oil, putting more pressure on the American 10-year, and compromising the soft landing scenarios in Europe and the United States, the dollar continues to gain points ahead of the outcome, tomorrow, of a particularly anticipated Fed FOMC meeting.

This Fed Monetary Policy Committee should result in a status quo on the Fed Funds themselves, but should rhyme with firmness in intentions. In other words, in the event that terminal rates are reached, we would have to deal with them over a long period.

As a reminder, the ECB decided last week by increasing its key rates by 25bp, adjusting its inflation forecasts upwards and its growth forecasts in the monetary union downwards. Thomas Giudici, head of bond management at Auris Gestion, notes that "the members of the institution believe [...] that the risk factors for inflation remain oriented upwards, the dynamics of wages, particularly in services, remaining strong, despite the deterioration of growth forecasts."

“The question that now arises is how long the ECB will maintain its key rates at this level. At least until the first quarter of next year even if visibility is low. The next update of the macroeconomic scenario in December could give us the first elements of an answer."

No surprises regarding consumer prices in the Euro Zone, excluding food, energy, alcohol and tobacco in final data for August, up 5.2% year-on-year, in line with initial estimates.

Right now, the EUR/USD is trading at $1.0702.

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 $1.0705. 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 269 pips and the risk of loss is 88 pips.