EUR/USD: A test on a bullish sloping line

The EUR/USD spot price is currently resting on a slanted support line, drawn in black below. The slope of this major support level measures the strength of the underlying upward momentum in the currency pair. This market psychology is ultimately unchanged after the latest developments regarding the downgrade of the French debt rating and US monetary policy.

As a reminder, last Wednesday, the Fed chairman, who spoke at a press conference half an hour after the decision to cut key rates by 25 bps, sent a rather cautious message. While he suggested that this monetary easing could be followed by further cuts by the end of the year, the downward trajectory of key rates is not set in stone. The Fed Governors' thinking will therefore be conducted on a meeting-by-meeting basis, a much less accommodative strategy than the market had anticipated following Jackson Hole and the August monthly employment report.

Only one Governor stood out, voting for a 50 basis point cut in key rates.

"First, it's interesting to note that Steve Miran was the only one to express disagreement. It seems to us that this could be a deliberate decision on the part of the other members of the FOMC (Federal Reserve Committee) to show their support for Powell and, in fact, as an implicit act of support for the Fed's independence. Perhaps we're reading things too far, but if true, it is a positive message," note ING economists.

During the press conference, Chairman Jerome Powell suggested that this monetary easing could be followed by further cuts by the end of the year. However, he cautioned that inflation risks still need to be assessed and managed, notes Invest Securities.

At this stage, the dot plots (projections in dot charts) suggest two more 25-bps cuts by the end of the year. This is because the approach will be "meeting by meeting."

"The weakening labor market will eventually weigh on inflation, which explains the Fed's willingness to wait in the face of persistent inflation. The Fed's differing views regarding 2026 are significant, which suggests more volatility in financial markets next year," analysed Jack McIntyre, portfolio manager at Brandywine (a subsidiary of Franklin Templeton), following the Fed meeting.

This slowdown in the labor market is indeed very noticeable, and the latest federal report for August, published at the end of last week, highlights this. In detail, this NFP highlights a slight increase in the unemployment rate, to 4.2% of the labor force, within the consensus target. The target for the average increase in hourly wages (+0.2%) was also met. However - and this is where the problem lies - job creation in the private sector excluding agriculture, expected to decline to 74,000, actually stood at 23,000.

Right now, the EUR/USD is trading at $1.1772.

KEY CHART ELEMENTS
The bearish oblique line drawn in black remains in place, defining the quality of the underlying bullish trend. Following renewed support at this benchmark, the Bollinger Bands are beginning to widen slightly, and we are resuming our upward approach to the currency pair, which has sufficiently consolidated.

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

Our entry point is at $1.1776. The price target for our bullish scenario is $1.2465. To protect your invested capital, we recommend placing a protective stop loss at $1.1539.

The expected return on this forex strategy is 689 pips and the risk of loss is 237 pips.