EUR/USD: Accumulated energy in a wedge pattern

The EUR/USD graced us with the outline of a textbook wedge pattern, a classic energy accumulation pattern from which a downward exit, after a possible last bullish access, is anticipated. Basically, the market psychology governing the EURUSD pair remained the same, with the dollar remaining supported by the insolent health of the US economy, and the euro suffering from the chronic difficulties of the German economy and French budgetary problems.

The latest macroeconomic publications confirm this framework. The NFP in particular, the traditional monthly report on the health of private employment in the US, came out at a particularly solid level on Friday, without however reducing the probability of seeing the remuneration of the Fed Funds fall by 25 basis points on 17 December.

Published this morning, the Sentix index of investor confidence in the Eurozone, plunged deeper into negative territory at -17.6, compared with a consensus close to the last publication of the indicator, at -12.3. This is the worst score since November 2023, both for the "current situation" component and for the "forecasts" component. The only German "current situation" component fell sharply below -50, following the announcement of new elections to the Bundestag.

It is in this context that a new meeting of the Monetary Policy Committee of the European Central Bank (ECB) will end on Thursday. "The European Central Bank (ECB) is maintaining its rate-cutting policy and is expected to cut the deposit rate by another 25 basis points to 3.00 percent in December," predicts Ulrike Kastens, European Economist at DWS.

"Markets' attention is likely to focus on the new projections through 2027. The deterioration in sentiment indicators could lead to a downward revision of growth forecasts, particularly for 2025 and 2026. This should also be reflected in inflation forecasts. We expect the 1.9% inflation target to be met over the 2025-2027 period, which in our view paves the way for a further reduction in the deposit rate to 2.1%, the lower bound of our estimate of the neutral rate."

At midday on the foreign exchange market, the Euro was trading against around $1.0560.

KEY CHART ELEMENTS
The wedge formed since 22 November is coming to an end, and the pent-up energy is now compressed. A downward exit, consistent with the upward entry in the second half of November in a volatile environment, is anticipated.

MEDIUM-TERM FORECAST
In light of the key graphical factors we have mentioned, our medium-term view is negative on the EUR/USD.

Our entry point is at $1.0562. The price target of our bearish scenario is at $1.0101. To preserve the invested capital, we advise you to position a protective stop at $1.0691.

The expected profitability of this strategy is 461 pips and the risk of loss is 129 pips.