EUR/USD: the risky euro continues to lose ground

The surge in long-term rates was only barely put on hold, very momentarily, at the end of last week, by the publication of inflation figures lower than expected, on both sides of the Atlantic. With an American 10 year above 4.70, a German 10 year at 2.92 and a French 10 year at 3.50, the appetite for risk is contracting on the financial markets. And the last-minute avoidance of the US shutdown will not have changed anything.

"As usual, the US periodically replays the psychodrama of the shutdown when it is not that of the debt ceiling. This time, Congress narrowly avoided the blockage of US administrations by adopting a measure to allow their financing to continue for 45 days." says Tom Giudici, head of bonds at Auris Gestion.

"As schizophrenic as it may seem, this news does not seem to constitute a real relief for the markets. Indeed, while a shutdown would have had a negative impact on American growth (of the order of 0.2 points of GDP per week according to analysts at Goldman Sachs) able to ease the pressure on rates a little, this emergency measure makes it possible to maintain short-term growth prospects and therefore supports the idea of a new rate increase by the Fed."

Verdict next month with a new FOMC (Monetary Policy Committee). The CME's FedWatch tool predicts a 25 bps increase in Fed Funds with a significant probability of 25.6%. At that time, the Fed will have new benchmarks on consumption, prices and employment.

Employment will be discussed throughout the week. The monthly federal NFP (Non Farm Payrolls) report will be released on Friday. The opportunity to gauge the persistence of tensions on the job market, and also the opportunity to definitively rule out the specter of a price/wage spiral, which has so far been avoided. In the meantime, operators will have their work cut out for them with new job offers (JOLTS) this Tuesday, the ADP employment survey on Wednesday, and weekly registrations for unemployment benefits on Thursday.

Right now, the EUR/USD is trading at $1.0469.

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 took 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 latter, precisely, increasingly plays a graphic role of resistance.

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 $1.0478. The price target for our bearish scenario is at $1.0101. To preserve the invested capital, we advise you to position a protective stop at $1.0671.

The expected profitability of this forex strategy is 377 pips and the risk of loss is 193 pips.