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#1 21-10-2024 13:07:42

johnedward
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From: Paris - France
Registered: 21-12-2009
Posts: 3670
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EUR/USD: the decline continues

EUR/USD: the decline continues


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During the past week, the euro accentuated its short-term bearish bias against the dollar, against a backdrop of anticipation of an acceleration in the pace of reduction of key rates, in a Europe relieved by the "control of inflation", but worried about the health of German industry, the situation of French public finances and, in general, the state of the economy of the monetary union.

The Governors unanimously decided to lower its main key rate by 25 basis points.

This is the third rate cut this year, after the one decided in June, followed by another in September. It is justified by the slowdown in inflation in the eurozone.

"It's done. The European Central Bank (ECB) has lowered its key rate by 25 basis points. Unfortunately, there was no internal debate within the Governing Council on the advisability of a larger cut," says Chris Dembik, investment strategy advisor at Pictet AM

"Historically, countries close to the German approach have always had a preponderant voice within the institution." This has resulted in significant weight being given in decisions to weak signals that could indicate inflationary pressures. Thus, 3 weeks ago, the Slovenian governor had publicly questioned the advisability of a rate cut in October, worrying about a possible price-wage loop that has not materialised since the beginning of the year.

"The good news is that this may change. We are facing a radical economic inversion within the eurozone that could have a long-term effect on the institutional functioning of the ECB. The countries of Southern Europe - the former Club Med - are now the economic engine of the zone".

Traders, who will be deprived of sharp macroeconomic benchmarks today, will have plenty to do throughout the week, in particular with barometer indicators of activity on Thursday, and the IFO index of the business climate in Germany on Thursday.

Right now, the EUR/USD is trading at $1.0853.

KEY GRAPHIC ELEMENTS
The oblique support line (drawn in black) has given way in a significant and increasing level of volatility. The 50-day moving average (in orange) has also given way quickly, the bearish message is reinforced. The next graphical event to watch is the current crossing of two remarkable moving averages, at 20 and 50 days. The crossing angle is significant, in light of the current correction.

MEDIUM-TERM FORECAST
In view of 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 $1.0851. The price target of our bearish scenario is at $1.0551. To preserve the capital invested, we advise you to position a protective stop at $1.0971.

The expected return on this strategy is 300 pips and the risk of loss is 120 pips.

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