EUR/USD: euro stands firm despite Fitch sanction

The penalty has been imposed: Fitch has downgraded France's sovereign rating to A+, which out of 10 would be equivalent to 8. Reacting to the loss of the double A rating, Thierry Breton, former EU Commissioner, in an interview with La Tribune Dimanche, lamented that "France has just changed its division. The worrying thing is that we are paying more and more to finance our deficits and refinance our debt. This debt, now the nation's largest budget item, is on its way to 100 billion euros."

This downgrade comes amidst a period of instability in the Eurozone's second-largest economy.

"The agency also notes the robustness and great diversity of the French economy, which underscore the stable outlook," notes Philippe Waechter, Director of Economic Research at Ostrum Asset Management. "The adjustment made by Fitch will not have a significant impact on the market, as the interest rate on French government bonds was already higher than that generally corresponding to the previous AA- rating."

Indeed, on the foreign exchange market, the EUR/USD remained virtually stable this Monday, in close proximity to its 50-day moving average, while the CAC 40 even outperformed the DAX.

The foreign exchange market is now turning its attention to the Fed and the outcome of Wednesday's meeting of the Monetary Policy Committee. It is expected to result in a reduction in the Fed Funds rate of 25 basis points, or even 50 basis points. The institution will base its decision on a slowdown in employment growth and recent inflation figures that have shown no unpleasant surprises.

"Since Jerome Powell's speech at Jackson Hole, it has become clear that the Fed's response is focused more on the labor market than on inflation. Although data show that much of the weakness in the labor market stems from lower supply (particularly immigration), demand is also showing signs of weakening. Indeed, leading indicators such as the ISM employment index suggest that job growth is likely to slow further," emphasises Claudia Panseri, Chief Investment Officer at UBS WM France.

At the close of this major gathering of the world's financial experts, the Fed chief clearly paved the way for a resumption of monetary easing.

The most important macroeconomic statistic of last week was released on Thursday in the US: the CPI, or consumer price index, one of the most direct measures of inflation. No surprise, inflation is up, from +2.6% to +3% year-on-year, for the broadest basket of products, including food and energy. However, this was expected.

The day before, traders were already taking note of an inflation indicator, this one a barometer: US producer prices for August. And against all expectations, the producer price index (PPI) fell by 0.1%, while the consensus was expecting an increase of 0.3%. They had risen by 0.6% in July.

It should be noted that Friday's session was marked by a surprise decline in the Consumer Confidence Index (U-Mich), in preliminary data.

Right now, the pair is trading at $1.1759.

KEY CHART ELEMENTS
The Euro/Dollar currency pair is in a marked upward trend, underlying, above a meaningful oblique line. We have represented this linear graphical support level in black. In the immediate future, we will keep a close eye on the relative positioning of the 20-day (dark blue) and 50-day (orange) moving averages to optimize entry points. The dynamics of the Bollinger Bands are also under close surveillance.

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

We will maintain this neutral view as long as the EUR/USD is positioned between the support at $1.1608 and the resistance at $1.1835.