EUR/USD: news ahead of tomorrow's ECB meeting

On the eve of the outcome of a new ECB Governing Council, the EUR/USD remains under pressure in the short term, completing a pullback on an oblique basis supporting a shoulder, head and shoulders pattern.

"Little suspense in sight at the next meeting of the ECB Governing Council, scheduled for 12 September. Christine Lagarde should announce, barring any major surprises, a 25 basis point cut in key rates, after having opted for the status quo on July 18," note strategists at Swiss Life AM.

"On the domestic European front, political tensions continue to create a risk of damaging instability and increased volatility for the markets, but the Frankfurt-based monetary institution remains on the lookout to intervene if necessary. Vigilant as to the evolution of macroeconomic data available over the coming months, the ECB should be supported by the American Federal Reserve (Fed) in its monetary easing strategy."

The German economy, traditionally driven by its industry, is the focus of concerns and should support the ECB's decision. "Growth is worrying in Europe, particularly in Germany, and inflation is showing signs of moderation," says M. Auboyneau, Manager at Amplegest. "The rate cut cycle should therefore continue, especially since it will now coincide with the one that the American Federal Reserve should initiate."

On the US side, the Fed is in fact finishing a new meeting of its Federal Open Market Committee (FOMC) on 18 September. A historic meeting that will mark the beginning of the monetary easing process by direct action on rates. "If a 25 bps cut in key rates seems to be a given (a first since the plateau reached over a year ago), is it possible that the latest economic data will allow the American institution to make a 50 bps cut?" asks Thomas Giudici, who considers that "the latest employment data are not bad enough to justify an overreaction by the Fed even though they confirm the slowdown in the labor market."

On Friday, the monthly report on private employment in the US, without being catastrophic, rekindled doubts, to the point of weighing heavily on Wall Street, particularly on the technology side of the stock market.

Because if the unemployment rate remains stable at 4.1% of the working population, the number of job creations in the private sector (excluding agriculture) stands at 143,000, well below the target. So, of course, the result is not as bad as in July (113,000), but it rekindles the debate on the nature of the landing of the American economy. In other words, the soft landing, and a fortiori the kiss landing, is no longer so relevant. Finally, the average hourly wage, at +0.4%, exceeds the consensus.

Right now, the EUR/USD is trading at $1.1021.

KEY CHART ELEMENTS
A head and shoulders, shoulders, chart pattern, on a slanting neckline base, is emerging, even though the relative strength RSI indicator is sending negative messages.

MEDIUM-TERM FORECAST
In view of the key graphic factors that we have mentioned, our opinion is negative in the medium term on the EUR/USD.

Our entry point is at $1.1040. The price target of our bearish scenario is at $1.0759. To preserve the capital invested, we advise you to position a protective stop at $1.1135.

The expected profitability of this forex strategy is 281 pips and the risk of loss is 95 pips.