EUR/USD: Questions regarding the health of industry in the eurozone

The EUR remains stuck below its 20-day moving average (in dark blue) against the USD, in a forex market which has digested the idea that the first rate cut on the Fed side wouldn't be right away, and that the cumulative magnitude of the declines over the whole of 2024 will be less significant than expected. On Wednesday, several Fed execs put forward a militant argument for a calm attitude, without urgency for the start of monetary easing. Once this relaxation has begun, there is no reason to adopt a frantic pace of loosening the tap.

The only important statistic, yesterday, will have reinforced this idea: weekly registrations for unemployment benefits came out at an even lower level than expected, still very close to the floor of 200,000, corroborating the state of tension highlighted last Friday with the publication of the NFP (Non Farm Payrolls).

The euro also remained struggling due to chronic questions about the health of industry in the monetary union. Following the production volume figures in Italy published this morning, Nomura analysts make the following observation:

"Based on 87.6% of the national data received so far (Italian data included), production growth in the euro zone was perfectly zero month-on-month for December 2023. Certainly after two months of contraction but this masks significant heterogeneity. In December, France and Italy contributed strongly to the increase, both up 1%. However, Germany more than offset both increases with a decline of 1%, .2% month-on-month. The weakness is particularly acute for intermediate goods compared to pre-pandemic levels."

Right now, the EUR/USD is trading at $1.0770.

KEY CHART 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 13 November. 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 mentioned, which accelerates downward, 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 $1.0766. 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 $1.0851.

The expected profitability of this strategy is 330 pips and the risk of loss is 85 pips.