EUR/USD: A short moving average still applies pressure

Like the stock markets on both sides of the Atlantic, the single currency, a key barometer of risk appetite, has attempted a very tentative rebound since yesterday, while remaining under pressure below its 20-day moving average (dark blue line).

Two macroeconomic statistics released yesterday eased the mood. With the government shutdown depriving investors of reports and studies produced by federal departments and agencies, the market must rely on private companies like ADP or professional organizations like the ISM (Institute for Supply Management). The former highlighted job creation (41,000) that exceeded expectations in the private sector, and the latter showed growth in the services sector that surpassed consensus estimates.

However, these figures provide an incomplete picture of the health of the US economy in the absence of official data due to the government shutdown in the United States. This government shutdown lasted 35 days, making it the longest in US history.

"With no employment reports due to the shutdown, labor market indicators published by the private sector improved marginally in October but continue to signal very weak momentum. This is consistent with the idea of ​​a 'gradual slowdown' mentioned by Jerome Powell at last week's press conference and argues for further monetary easing," notes Bastien Drut, Head of Strategy and Economic Research at CPRAM.

The short-term outlook remains unchanged, still bearish, against a backdrop of increasingly intense questions about valuation levels in the AI ​​ecosystem, and with the feeling that the Fed's monetary easing will take a long time.

"On the Fed's side, last week's meeting resulted in a rate cut, but in a firmer tone than the markets had anticipated. It is important to note that the Fed has hinted that a December rate cut is not a given, even though markets still expect another cut before the end of the year," notes Brian Levitt, Chief Global Market Strategist and Head of Strategy, and Benjamin Jones, Global Head of Research, Strategy & Insights at Invesco.

The CME Group's FedWatch tool gives a 66.6% probability of another federal rate cut of 25 basis points next month at the last FOMC meeting of the year.

Asset management decision-makers are expecting a rate cut "in the coming months. More importantly, the actions taken by the Fed last week reaffirmed its independence. The central bank acted based on its assessment of the data, not on political pressure." Underlining market confidence in the Fed's independence, inflation expectations in the bond market remain remarkably stable.

Right now, the EUR/USD is trading at $1.1524.

KEY TECHNICAL ELEMENTS
The upward trendline that had prevailed until now (in black on the chart) has now been broken, with a confirmation pullback. A bearish outlook is suggested 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 at $1.1514. The price target The target price in our bearish scenario is $1.1013. To protect your capital, we advise placing a stop-loss order at $1.1611.

The expected profit for this forex strategy is 501 pips, and the potential loss is 97 pips.