EUR/USD: what the end of the shutdown means for traders

The Euro, one of the most reliable barometers of risk appetite in financial markets, found some relief in the immediate vicinity of its 20-day moving average (dark blue line), a short-term trend line that continues to act as a resistance level. This pullback, also noticeable in the main European stock markets this morning, is linked to the announced end of the government shutdown in the United States.

At the time of writing, Germany's DAX was up 1.78% and France's CAC 40 1.36%.

This budget impasse, which led to the closure of numerous federal services deemed non-essential, has been the longest in American history. But a resolution, barring the issue of health insurance, is well underway. Only the approval of the House of Representatives is needed to formally end the shutdown.

This end to the shutdown will also allow for a return to normalcy in the publication of numerous statistical indicators, particularly those related to employment. As a reminder, the August Non-Farm Payrolls (NFP) report highlighted a significant deterioration in the health of private-sector employment in the United States. This barometer is essential for the Fed in shaping its monetary policy. Since then, currency traders have been deprived of this benchmark. The end of the shutdown offers them hope for greater visibility regarding the trajectory of federal interest rates, which determine the dollar's value.

The foreign exchange market is also welcoming the absence of new trade tensions between Washington and Beijing. "This new phase of a trade truce between the United States and China marks a welcome easing of tensions," summarises Thuy Van Pham (Groupama AM). "This does not, however, signify the end of uncertainty. We believe that while both sides may show a willingness to compromise, the strategic rivalry remains intact. In this context, alternating periods of tension and calm during the pause are conceivable. A complete break in trade, on the other hand, seems unlikely, given how closely the two economies are interdependent."

On Friday's statistical front, there were few surprises regarding the German trade surplus and the French monthly trade deficit, both fairly close to their respective expectations. In the US, there was definite disappointment with the preliminary data for the University of Michigan consumer sentiment index, which came in at 50.4, well below expectations (52).

Right now, the EUR/USD is trading at $1.1569.

KEY TECHNICAL ELEMENTS
The upward trendline that had prevailed until now (in black on the chart) has been broken, with a confirmation pullback. A bearish outlook is suggested below this trendline, as the Relative Strength Index (RSI) 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, while the RSI has been in a marked downward trend since mid-September.

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

Our entry point is $1.1563. The price target for our bearish scenario is $1.1013. To protect your invested capital, we advise you to place a stop-loss order at $1.1661.

The expected profit for this strategy is 550 pips, and the potential loss is 98 pips.