EUR/USD: A retreat after the pullback

On the EUR/USD, the 20-day moving average (in dark blue) crossed downwards with its 50-day counterpart (in orange), while this weekend, Standard & Poor's downgraded its rating on French debt, downgrading it from AA- to A+ with a negative outlook. The verdict was not expected until 27 November.

On Tuesday, Goldman Sachs indicated that it was forecasting a deficit of 5.2% of GDP for 2026, while Prime Minister Sebastien Lecornu stated this week that the rate should not exceed 5% in the 2026 budget bill, once the parliamentary debate is completed.

"We still anticipate little progress in reducing the public deficit (...) In any case, deep political disagreements, slowing growth, and higher borrowing costs risk preventing any significant progress," the bank says.

It is in this context that Moody's will also deliver its verdict on France on Friday. "Will the agency simply lower its outlook? Or will it downgrade France's rating directly?" asks Alexandre Baradez, Head of Market Analysis at IG France.

"It's worth remembering that at Moody's, France has an Aa3 rating with a "stable" outlook. In a gradual adjustment process, a rating agency first lowers the outlook from "stable" to "negative," and then decides to downgrade the rating if no improvement in the outlook is observed."

"But on Friday, Moody's could well decide to skip the outlook downgrade step and go directly to downgrading the rating. Indeed, a rating agency can lower a credit rating without first changing the outlook. S&P, Moody's, or Fitch can lower a rating due to sudden events (such as financial difficulties, policy changes, or market shocks) without first adjusting the outlook."

In the US, for the time being, the fiscal paralysis is causing little turmoil in the bond markets, and tensions on the 10-year bond have quickly subsided. 10-year Treasuries are gently hovering around 4%.

"In 2019, during his first term, the government was shut down for 35 days, which remains a record to this day. At the time, the White House's Council of Economic Advisers estimated that a week of shutdown cost 0.2 percentage points of annual GDP, or billions. Compared to a month, this figure climbed to billions," recontextualises Greg Kounowski, Investment Advisor at Norman K.

"In reality, by being aggressive, the American president also seems to be signaling his desire to end this budgetary impasse. Extending the shutdown would likely dampen the incredible dynamism that persists on Wall Street and that the White House tenant is calling for."

Forex traders are clearly eager to see the various statistics published by federal agencies since the end of September. The NFP employment report, as well as consumer prices, two pillars of the Fed's thinking in shaping its monetary policy, are particularly eagerly awaited.

Especially as the next monetary policy deadlines (the Fed's FOMC and the ECB's Governing Council) are approaching, on 28 and 30 October.

Right now, the EUR/USD is trading at $1.1607.

KEY CHART ELEMENTS
The previously prevailing bullish oblique (in black on the chart) has now been broken, with a confirmatory pullback. A negative view is proposed below this oblique, while the relative strength index is collapsing. The 20-day moving average (in dark blue) is about to break at a significant angle, the trajectory of its 50-day counterpart (in orange).

MEDIUM-TERM FORECAST
Based on the key chart factors we have mentioned, our medium-term view is negative on the pair.

Our entry point is at $1.1614. The price target for our bearish scenario is $1.1013. To preserve the invested capital, we recommend placing a protective stop loss at $1.1731.

The expected return on this strategy is 601 pips and the risk of loss is 117 pips.