EUR/USD: Trump's nominations are affecting risk appetite

The EUR/USD remains under strong pressure, against a backdrop of tensions on the US 10-year while the US economy is showing insolent resilience. Tensions revived last week by Powell, Fed Chairman, during an event organized at the Federal Reserve branch of the Dallas Fed. Based on the very good health of the US economy, he explained that a rapid rate cut was not justified, and that there was no urgency in the ongoing monetary easing process. A tone deemed 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 jumped to 37.5%. The US 10-year, for its part, continues to quiver in the immediate vicinity of 4.44%. "While the Fed Chairman still considers that the US economy is "remarkably good" with a still resilient labour market, he is now more measured on the inflationary risk while the American institution is not yet officially taking into account the outcome of the election. Jerome Powell therefore considers that the Fed will have to maintain a gradual and cautious approach in the coming weeks," said Thomas Guidi, Head of Bonds at Auris Gestion.

Currency traders are gradually losing their appetite for risk as Trump unveils his next appointments. "We will thus note the future nominations of (i) Matt Gaetz to Justice, under investigation by a House of Representatives ethics report for various alleged sexual offenses and embezzlement, of (ii) Robert Kennedy Jr, as Secretary of Health, dragging the entire pharmaceutical sector into the red, of (iii) Brendan Carr at the head of the telecoms regulator and quite fiercely opposed to GAFAM, which he considers a censorship cartel to be dismantled, or, for example, of (iv) Chris Wright as Secretary of Energy and founder of a company specialising in hydraulic fracturing and shale oil."

The appetite for risk is also contracting in light of the geopolitical situation. Russian President Vladimir Putin signed the decree expanding the possibilities of using nuclear weapons on Tuesday. Quoted by AFP, Dmitry Peskov, Kremlin spokesman, considered that this decision was "necessary" in the face of "threats" from the West. This decision by Russia comes two days after the Biden administration gave Ukraine a boost, allowing it to strike Russian soil with American long-range missiles.

Investors therefore fear an escalation of the conflict between Ukraine and Russia. "This is the only real reason for the market to fall this Tuesday: the growing tensions around Russia. In theory, the country can respond nuclearly if its territorial sovereignty is threatened," says Alex Baradez, an analyst at IG France.

On the statistical side this morning, for the Eurozone, the final consumer price data, in final data for the month of October, excluding food, energy, alcohol and tobacco, came out at +2.8% on an annual basis, in line with initial estimates. Today: housing starts and building permits in the US, at 14:30 (EU time).

Right now, the EUR/USD is trading at $1.0570.

KEY CHART ELEMENTS
The currency pair has just broken out of a wedge pattern, in intense volatility, which confirms the bearish bias, which is now fundamental. Since then, the fragile supports have broken 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 $1.0565. The price target of our bearish scenario is at $1.0151. To preserve the capital invested, we advise you to position a protective stop at $1.0701.

The expected return on this strategy is 414 pips and the risk of loss is 136 pips.