EUR/USD: A short period of respite

The EUR/USD was "lateralising" with difficulty near $1.0550 for one dollar, while sovereign bond yields remained particularly firm, in the wake of the publication last week of inflation, consumption, and industrial health figures showing a glowing health, and an impressive resilience of the American economy.

Latest figures to date: retail sales for the month of October. A key measure of US consumer sentiment, they increased by 0.5% compared to September, and thus slightly exceed economists' expectations (+0.4%). The September figures were revised upwards, with an increase of 0.9% against an initial forecast of 0.5%. In addition, the "Empire State" index, the manufacturing index of the NY Fed, exploded expectations, jumping from -12 to 31.3 points.

"The strength we are currently seeing in the economy allows us to approach our decisions with caution. Ultimately, the trajectory of key rates will depend on the evolution of the data and the economic outlook," he adds. These statements are considered restrictive by the market. "It was a cold shower for traders, who had pushed US stocks to an 11-year high after Trump's victory," explains Steve Innes of Spi AM. It's therefore the shape of the downward curve of the remuneration of the Fed Funds that is being disrupted.

These tensions were revived last week by Powell, Head of the Fed, during an event organized at the federal branch of the Dallas Fed. Based on the very good health of the American economy, he explained that a rapid rate cut was not justified, and that there was no urgency in the monetary easing process currently underway. A tone considered less dovish, if not more hawkish than expected. In the process, and according to the CME Group's FedWatch tool, the probability of a monetary status quo at the end of the next FOMC has jumped to 37.5%. The American 10-year, for its part, continues to shudder in the immediate vicinity of 4.44%.

These "inflationary" expectations in the US are naturally very directly linked to the expansionist policy of the President-elect, Donald Trump. "Trump's victory should result in a reduction in corporate taxes that should allow them to innovate and have comfortable margins", for Chris Dembik, investment strategy advisor at Pictet AM, who thinks conversely "that the growth in earnings per share of 9% next year expected for CAC 40 companies is... optimistic in view of the risks linked to China and the trade war."

As for the Eurozone's leading economy, Germany, it continues to suffer from a marked slowdown in its key sector, industry. The "ZEW" (investor confidence) published at the beginning of the week was worrying in this respect. "The ZEW (Leibniz Centre for European Economic Research in Mannheim) fell significantly in November, in reaction to the election of Trump and the American customs duties that will weigh on the already struggling European manufacturing sector," notes the strategists at Nomura. "The gap between the sentiment of eurozone investors and that of German investors has widened further. We believe that Germany risks being more strongly affected by the American crisis."

Today: the NAHB index of the American residential market at 16:00 (EU time). Also: at 19:30 today, a speech by Ms. Lagarde, entitled "The economic and human challenges of a changing era" during an event organised by the Fondation des Bernardins, in Paris.

KEY CHART ELEMENTS
The EUR/USD has just broken out of a wedge pattern in intense volatility, confirming the bearish bias, which is now fundamental. Since then, the fragile supports have been breaking one after the other. Negative opinion maintained.

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 $1.0541. The price target of our bearish scenario is at $1.0239. To preserve the capital invested, we advise you to position a protective stop at $1.0661.

The expected profitability of this forex strategy is 302 pips and the risk of loss is 120 pips.