EUR/USD: interest rates in the spotlight

While the American 10-year continued its rise, now beyond 4.54%, the greenback continues to gain points against a Euro which suffered from its reputation as a "risky" asset, while the index IFO of the business climate in Germany yesterday confirmed the difficulties of the largest economy in the Euro Zone.

These tensions on the bond market always echo the firmness of central bankers on their monetary policy. At the end of last week, the American Federal Reserve expressed its desire to maintain its rates at high levels.

“The members of the FOMC still anticipate an increase in key rates before the end of the year before lowering them twice, against four previously, next year,” anticipates Thomas Giudici (Auris Gestion), based on the dot plots of the Fed, the famous dot chart published quarterly, which had the effect of a cold shower on the markets.

The President of the European Central Bank, Christine Lagarde, in the same spirit, declared that "interest rates will be set at sufficiently restrictive levels for as long as necessary", during a speech before the Economic Affairs Committee and Monetary Affairs of the European Parliament. Isabel Schnabel, member of the board of governors of the European Central Bank, for her part indicated on Monday that “the inflation problem is not yet resolved”.

Yesterday currency traders took note of the IFO business climate index in Germany, which continues to decline, at 85.8 points without falling below the target. The economic cycle clock tool continues its worrying dynamics in the heart of the so-called crisis zone.

On Friday, currency traders had to deal with preliminary data from the Services PMI. The French component, in particular, for the services sector alone, comes out at 44, completely missing expectations. The French industrial sector is not left out. “In terms of the weakness of the industrial economy, France is now catching up with Germany,” says Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank.

This Tuesday, it is the turn of the Conference Board consumer confidence index to be the focal point. The index, traditionally closely followed, is expected to fall to 105.6. The opportunity to measure the ability of the United States to achieve this so-called soft landing scenario for their economy.

Right now, the EUR/USD is trading at $1.0609.

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. 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 $1.0590. The price target for our bearish scenario is at $1.0239. To preserve the invested capital, we advise you to position a protective stop at $1.0711.

The expected profitability of this strategy is 351 pips and the risk of loss is 121 pips.