EUR/USD: the pair is nearing parity

Bearish bias confirmed for the EUR/USD, which continues to suffer from a low potential future return, of the first currency against the second, at a time when the American economy is showing insolent resilience, and when the European economy is losing momentum with its French and German leaders.

"Public deficits and debt are another increasingly threatening pitfall that require more effective actions from States. In France, we see the difficulty of reducing public spending and the natural propensity to prefer stupid tax increases that are not conducive to growth. If we add lower-than-expected inflation and now the Central Bank's objective, everything now argues for more vigorous action by the latter. Internal debates within the monetary institution are giving rise to increasingly audible voices in favour of accelerating the rate cut process. The monetary easing cycle that began in July will therefore, in our opinion, continue and even increase," comments Emmanuel Auboyneau, managing partner of Amplegest.

In the US, "the monetary easing cycle has begun but it should be slow and steady. An election of Donald Trump could also marginally slow down these rate cuts due to a slightly more inflationary policy, particularly in trade," continued the asset management executive.

In Germany, it is particularly the German industrial model, THE traditional strong point, which is showing its limits after several years of inflation.

Currency traders are keeping a close eye on the final stretch before the outcome of the American presidential election, while bird words fly between the candidates, via meetings.

"As in the last elections, it could be decided by a few votes and the results might not be known on the same day, each State having, moreover, its own electoral rules (and rules for contesting the results)", comments Thomas Giudici, head of bond management at Auris Gestion, who has the humility not to play the oracle: "It is thus quite complicated to position the portfolios in one direction or the other as the result of the election is more a matter of the casino than of political or financial analysis".

Right now, the EUR/USD is trading at $1.0815.

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 $1.0796. 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 return on this forex strategy is 245 pips and the risk of loss is 85 pips.