EUR/USD: A moving average that acts like a trailing stop

Against a backdrop of progressive loss of appetite for risk on the financial markets, the euro, the reference barometer in this area, continued its slide against the dollar below a short moving average, the dynamics of which should be taken advantage of (see more down).

"Whereas nature abhors a vacuum, financial markets abhor uncertainty" says Matt Bailly, Deputy Director and bond manager of OCTO AM. "And when this uncertainty cannot be filled with a reality which becomes de facto certain, it is filled with volatility? This is precisely what we have noticed in recent days."

"In December, the consensus was quite certain and enthusiastic about the idea that central banks would massively lower rates throughout this year. But in January, the latter only asserted that they would remain cautious, wait-and-see, "data-dependent"," continues the manager.

And the latest statistics on American employment (NFP, Friday) can only add grist to J Powell's mills. The week ended with the publication of a very solid federal employment report. So solid that it was enough to instill doubt in the minds of operators, who continue to push back their calendar expectations for a first rate cut.

This publication on the health of private employment (excluding the agricultural sector), always closely monitored by the Fed, once again shows a particularly strong resilience of the world's largest economy. The content of the report, which exceeds expectations on all sub-indicators, fully confirms the directions chosen by the Federal Reserve earlier last week, at the end of its FOMC. The market is getting used to the idea of a first rate cut being postponed until the second half of the year.

In detail, the unemployment rate, expected to rise to 3.8%, ultimately remains stable at 3.8% of the active population. Problematic for inflation, the average hourly wage accelerates upwards (+0.7% against a target of +0.25%), and above all, job creations jump, to more than 350,000 in the month of January ! To the point of raising fears of entry into a price-wage spiral, a specter so far fortunately avoided?

For strategists at Pictet Wealth Management, "it's too early to conclude that the labour market is warming up again, given other data showing a general cooling trend. But the report raises the risk of a re-acceleration of the economy, which would certainly fuel bets on later rate cuts, and reduce their cumulative magnitude over 2024. Powell clearly opposes a rate cut starting in March, and the NFP report closes this door even more."

To follow on the statistical side, the American ISM services PMI at 4:00 p.m. Immediately, currency traders took note of the final services PMI data in the Euro Zone, at 48.4 for January, with no deviation from the first estimates.

Right now, the EUR/USD is trading at $1.0750.

KEY GRAPHIC ELEMENTS
Interestingly technical fact, the 20-day moving average (in dark blue, bearish), is currently breaking its 50-day moving average (in orange, horizontal), a first contact since November 13. The graphic and technical situation is tensing under this trend line. The angle of attack is, however, not very important. This trend curve, the first cited, will conveniently serve as a trailing stop.

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 $1.0754. 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 $1.0875.

The expected profitability of this strategy is 318 pips and the risk of loss is 121 pips.