EUR/USD: the PMI survey in the eurozone suggests stagflation

Driven upwards by the geopolitical situation, the dollar continues to dominate the euro, a risky currency itself penalised by new developments in the war in Ukraine. As a reminder, the Biden administration authorised Ukraine to use long-range missiles in Russian territory. Tensions rose another notch when Russia struck Ukraine with a hypersonic missile, on the city of Dnipro. A missile that did not carry a nuclear payload.

Geopolitics is not the only bullish catalyst for the Dollar, or bearish for the Euro as you wish. The difference in the pace of the economies on both sides of the Atlantic is another. The macroeconomic statistics published yesterday, on employment, real estate and industry, confirmed this. In particular, new weekly registrations for unemployment benefits, still very close to the 200,000 threshold, continue to betray a heating up of the job market. Which is unlikely to improve with the deliberately expansionist policy that Trump intends to implement as soon as he arrives at the White House on 20 January. With the inflationary risks that accompany it.

In the immediate future, currency traders have just learned of the very first estimates of the PMI activity barometers in the Eurozone for November. And it is clear that red dominates, regardless of the sector (industry or services) or the country (France, Germany, Eurozone as a whole). A glance at the German component alone for services is eloquent. The score, expected to be stable at 51.7, finally falls back below the 50-point mark (49.3), in the contraction zone. The German industrial component remains deeply in red territory, at 43.1, exactly the same score as for France.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, comments on the latest figures from the PMI Flash survey: "The latest data from the survey highlight stagflation in the eurozone in November: activity declined across the private sector as a whole while increases in prices paid and invoiced accelerated, notably due to rising costs in the services sector, itself linked to the strong wage pressures observed in the region throughout the third quarter. Price inflation in the services sector is a real headache for the ECB and in such a context, some voices within the institution could argue in favour of maintaining rates at their current level in December. However, most will probably stick to a 25 basis point reduction."

Today at 14:30 (EU time), equivalent figures for the United States and at 16:00 the US consumer confidence index (U-Mich), in a first estimate.

Right now, the EUR/USD is trading at $1.0406.

KEY CHART ELEMENTS
The currency pair has just broken out of a wedge pattern, amid intense volatility, which confirms the bearish bias, which is now fundamental. Since then, the fragile supports have been breaking one after the other. Negative opinion maintained. However, at this stage, the decline and the formation of a technical rebound will not be long in coming, we are watching for signs.

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 $1.0428. The price target for our bearish scenario is at $1.0101. To preserve the capital invested, we advise you to position a protective stop at $1.0586.

The expected return on this forex strategy is 327 pips and the risk of loss is 158 pips.