EUR/USD: The PMIs are putting pressure on Lagarde

Still under strong selling pressure, the EUR/USD began the week with a timid pullback to a zone close to $1.0550, while the PMIs (activity barometers) in the Eurozone have cast doubt on the upcoming decisions of the European Central Bank, starting with the outcome of the December Governing Council.

For these surveys of purchasing managers, 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 51.6, finally fell back below the 50-point mark (49.4), 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 PMI Flash survey figures: "The latest survey data point to stagflation in the euro area in November: activity declined across the private sector as a whole, while price increases both paid and invoiced accelerated, driven in particular by rising costs in the services sector, which in turn were linked to the strong wage pressures observed in the region throughout the third quarter. Service price inflation is a real headache for the ECB and in such a context, some voices within the institution could argue for keeping rates at their current level in December. However, most will probably stick to a 25 basis point cut."

But the -50 basis point option is also back on the table. "The weakness of the PMI indices published this morning confirms the current difficulties. While European growth remains weak, the ECB should continue to reduce its rates," says Olivier Dubs, manager at JP Morgan Private Bank. "The figures published today give reasons to consider a reduction of 50 basis points (0.5 percentage points) of the ECB's key rates in December," he adds.

The euro, as a barometer of risk appetite on the financial markets, continues to suffer from geopolitical tensions, tensions that have risen another notch last week. As a reminder, V Putin signed a Russian presidential decree extending the conditions for the use of nuclear fire. The tension has risen another notch as Russia struck Ukraine with a sonic missile, on the city of Dnipro. A missile that did not carry a nuclear payload.

"The strong dollar is likely to remain the norm in 2025," predicts Christopher Dembik, investment strategy advisor at Pictet AM. "International investors are now betting only on the US economy. As a result, inflows into the US market are reaching record levels, which is structurally supporting the rise in US stocks and the greenback. For example, over the week of November 5 to 13, US ETFs and mutual funds attracted $56 billion. This is the second largest weekly inflow since 2008. It's just incredible."

Today: a priority on the agenda is a speech by the President of the Bank of Germany at 18:30 (EU time). The agenda will be denser tomorrow with the US consumer confidence index (Conference Board) and the Fed Minutes, the traditional and valuable chronological report of the discussions at the last monetary policy meeting.

Right now, the EUR/USD is trading at $1.0498.

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 $1.0485. 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 $1.0621.

The expected return on this strategy is 384 pips and the risk of loss is 136 pips.