EUR/USD: the dollar will have plenty of catalysts this week

Above 4.30%, the yield on 10-year US Treasury bonds continued to put pressure on the Euro/Dollar currency pair, which is currently at the end of a wedge formation. The stagnation of employment, the main conclusion of the NFP report published on Friday, will not have affected the dynamics of the 10-year: it must be said that two exogenous, cyclical shocks weighed on these figures, which do not call into question the solidity of employment. These are the massive strike movements at the aircraft manufacturer Boeing and the passage of several hurricanes, which have affected job creation at various levels.

In detail, in October, the American economy created 12,000 jobs, against a target of 106,000. The unemployment rate remained stable at 4% of the active population, while the increase in average hourly wages was +0.4%, exceeding the consensus (+0.3%).

The week that is opening will be marked by the verdict of the American ballot boxes, on the night of the 5th to the 6th if necessary, and by the outcome on the 7th of a new meeting of the Fed's Monetary Policy Committee.

"The Dollar index is in an overbought zone - which is usual just before the presidential election", notes Christopher Dembik, investment strategy advisor at Pictet AM, who warns that it is difficult to say whether the name of the winner will be known in the wake of the election. "The ballot counting took 16 days in 2020," recalls Mr. Dembik, who adds that "due to a change in the electoral rules, it should take even longer this time around... Around 2 a.m., we should have data on mail-in votes in Pennsylvania. This will be important, because Trump needs Pennsylvania, Michigan or Wisconsin to win. At this point, his chances are highest in Pennsylvania. At 5 a.m. (EU time), if the gap is significant enough, the name of the next tenant of the White House could be known."

Alex Baradez (IG France) notes, however, a slight deflation of the "Trump Trade," [this phenomenon] which "designates a market behavior in which stock indices climb, the dollar climbs as well as rates, in anticipation of fiscal stimulus measures and regulatory relief." The analyst supports his point with online betting statistics and polls.

"There was in particular this unexpected poll in Iowa: while Donald Trump easily won the vote in this state in 2016 and 2020, a poll now gives Harris the lead, in particular due to women's voting intentions. While this was not the case in the same poll in September". Should we see a weak signal?

It is therefore possible that the Fed does not yet know the identity of the next tenant of the White House when it delivers its monetary verdict on November 7, very likely a (moderate, controlled) 25 basis point cut in the Fed Funds. A consensus that is based on excellent American economic statistics for the month of October, both in terms of consumption itself and consumer confidence.

In terms of stats this Monday, no problem with the final data from the PMI barometers in the Eurozone, very close to the first estimates for the month of October. No significant deviation from the consensus either for the Sentix index of investor confidence in the monetary union. The index came out at -12.8, still stuck in negative territory. The only German component, under the scrutiny of the traders, is improving a little, by almost two points.

Right now, the EUR/USD is trading at $1.0890.

KEY CHART 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. The flagship currency pair is currently in the process of finalizing a wedge pattern.

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 $1.0901. 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 $1.0951.

The expected profitability of this strategy is 350 pips and the risk of loss is 50 pips.