EUR/USD: the dephasing continues

In a context of European economy disconnection from the extremely resilient US economy, the EUR/USD continues its downward movement. The last two sessions of the week, tomorrow and Friday, will also be an opportunity to take a closer look at this dichotomy, with a battery of PMI activity indicators on both sides of the Atlantic, as well as the IFO business climate index in Germany.

"In this environment, the ECB has good reasons to revise its monetary adjustment", for Bruno Cavalier, Chief Economist at Oddo BHF. "The policy had been made very restrictive last year at a time when disinflation was not assured. Now, key rates should be much lower".

In the middle of the past week, the Euro has 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 reduction in its key rates this year, after the one decided in June, followed by another in September. It is justified by the slowdown in inflation in the Eurozone.

Currency traders are also keeping a close eye on the polls, which are still extremely tight, in the run-up to the American presidential election, THE major event that structures political life in the US.

"The US elections are a major event that can increase market volatility: political uncertainty and market reactions can create both risks and opportunities for investors. For example, policies that favor certain sectors - green energy under the Democrats or deregulation under the Republicans - can lead to significant swings in these areas," says Andrea Tueni, Head of Sales Trading at Saxo Banque.

Right now, the EUR/USD is trading at $1.0781.

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, reinforcing the bearish message. The next graphical event to watch is the ongoing crossover of two notable moving averages, at 20 and 50 days. The crossover angle is significant, in light of the current correction.

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 parity.

Our entry point is at $1.0785. 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 $1.0881.

The expected profitability of this Forex strategy is 234 pips and the risk of loss is 96 pips.