EUR/USD: the short-term bearish bias is confirmed

The short-term bearish bias on the EUR/USD was confirmed at the close of a week marked by major monetary policy events. Yesterday, the ECB concluded its Governing Council meeting.

As anticipated by the market, the European Central Bank decided to keep its key interest rates unchanged for the third consecutive time, at 2%.

"As with the meeting last September, the ECB emphasized the resilience of the Eurozone economy, enabling it to face a still uncertain environment in terms of both international trade and geopolitical tensions," comments Alexandre Perricard, President of Uzes Gestion.

"At this stage, the ECB confirms the appropriate positioning of its monetary policy in light of the economic environment and the risks involved. [...] The central bank consistently reiterates that it does not follow any predetermined interest rate path and that its future monetary policy decisions will depend on evolving data and their impact on the inflation outlook."

The day before, the Fed implemented a widely anticipated 25-basis-point cut to its key interest rate.

"While navigating by sight, the Fed determined that the slowdown in the labor market was a greater concern than persistent inflation. This position is justified given that employment figures are lagging economic indicators and monetary policy also operates with a certain lag. For October, the Fed therefore preferred to risk a further rate cut rather than wait. What is less consistent, however, is the unusual diversity of the disagreements," analyses J. McIntyre, a Manager at Brandywine Global (a subsidiary of Franklin Templeton).

It's worth noting that the August Non-Farm Payrolls (NFP) showed a marked deterioration in the health of the private sector labor market, and that currency traders are deprived of the September report due to the government shutdown.

"Miran's position, which favors a more pronounced cut, can be considered too dovish. But Schmid's position, which advocated for no cuts at all, combined with Powell's statements at the press conference, where he indicated he wanted to distinguish the Fed's outlook on future rate cuts from the market outlook for December, cannot be ignored. This divergence implies less complacency in the financial markets, more volatility, and more balanced flows in both directions," the asset management executive continued.

On the statistical front, the main figure to remember this Thursday is the stability of inflation in the Eurozone, at +2.3% in the very first estimates for October, excluding food, energy, alcohol, and tobacco. The consensus forecast had predicted a very slight decrease to 2.2%.

Right now, the EUR/USD is trading at $1.1535.

KEY TECHNICAL ELEMENTS
The upward trendline that had prevailed until now (in black on the chart) has been broken, with a confirming pullback. A bearish outlook is recommended below this trendline, as the relative strength index collapses. The 20-day moving average (in dark blue) has just broken significantly below its 50-day counterpart (in orange). The gap between these two technical indicators is widening.

MEDIUM-TERM FORECAST
Based on the key technical factors mentioned above, our medium-term outlook for the EUR/USD is bearish.

Our entry point is $1.1570. The price target for our bearish scenario is $1.1013. To protect your capital, we advise placing a stop-loss order at $1.1691.

The expected profit of this strategy is 557 pips and the risk of loss is 121 pips.