EUR/USD: the densest session of the week

The euro continued its downward movement against the dollar, as budget debates (finally!) opened in the French National Assembly, the macroeconomic calendar intensified this Friday, and Donald Trump toughened his stance against his Russian counterpart, Vladimir Putin.

The budget debates are indeed entering a heated debate in the Assembly, and currency traders will be able to see to what extent the various political leanings represented are "ready" to compromise.

A guest on BFMTV this Friday 24 October, unpopular Olivier Faure issued an ultimatum to Sebastian Lecornu on the budget, estimating that "for now, we are very far from the mark."

"If we are not heard, the story ends." Olivier Faure issued an ultimatum to Sebastian Lecornu today, raising the threat of government censure.

Political developments that will be further hampered by the Moody's decision on the French rating today.

In terms of statistics, traders learned of the first estimates of the PMI activity barometers for services (54.6) and manufacturing (50) in October in the Eurozone.

"The weakness of the French economy is increasingly weighing on the Eurozone's performance. While the economic situation improved significantly in Germany, the contraction accelerated for a second consecutive month in France. As a result, Eurozone growth, although slightly faster than in September, was much less pronounced than it would have been without the impact of the weak performance of the French private sector," explains Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank.

Note the publication of consumer prices in the US at 14:30 (EU time). Inflation statistics are being released with a huge delay, due to the workforce being automatically and drastically reduced by the shutdown.

On the international political front, risk appetite is automatically shrinking with new US sanctions against two Russian oil companies, Rosneft and Lukoil, including a freeze on their assets in the United States and a ban on US companies trading with them.

"These are the first significant US sanctions against Russia introduced since Trump's return to the White House in January and mark a radical change in tone from last week, when the two sides discussed a possible meeting in Budapest between Trump and Putin" to discuss the Ukrainian issue, Deutsche Bank emphasizes.

Lastly, traders will have a lot to do between now and the end of the month, with two monetary policy meetings looming: the ECB Governing Council and the Fed's Monetary Policy Committee, between 28 and 30 October.

Nomura economists expect "the ECB to leave its deposit rate unchanged at 2% at its 30 October meeting, [and] that the ECB will continue to focus on the data and move forward with the meetings, without changing its positions. ECB President Christine Lagarde is expected to reiterate that the ECB is well positioned with rates at current (i.e., neutral) levels to address the ongoing uncertainty related to US policy."

For the Fed, IbanFirst experts expect "two additional rate cuts within six months, to 3.75% versus 3.50% for the futures markets; due to the persistent inflation risk. We believe the inflationary effect of the US tariff policy will be less significant than initially anticipated. However, it will not be painless. Once the impact of the shutdown on the publication of statistics is estimated, we should begin to see a rebound in inflation in the fourth quarter, which should encourage the institution to be cautious."

Right now, the EUR/USD is trading at $1.1610.

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

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

Our entry point is at $1.1608. 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 forex strategy is 595 pips and the risk of loss is 123 pips.