EUR/USD: the short term moving average is being tested

The Euro benefited from the strength of the DAX and CAC indices, continuing its upward trend against the Dollar, which is currently trading below the 20-day moving average. The end of the government shutdown, after more than 35 days of fiscal paralysis in the United States, has fueled risk appetite since the beginning of the week. This record shutdown has left currency traders in a fog regarding macroeconomic data, as the main releases from federal agencies (employment, consumption, prices, production) have been postponed.

The drought is over, therefore, in the coming sessions, providing the Fed with a wealth of valuable data to use in the strategic construction of monetary policy. This data could, in turn, influence the trajectory of federal interest rates. We should gain a much clearer picture with the release of the September Non-Farm Payrolls report, the contents of which are highly anticipated after the disappointing figures for August.

"While few Americans would have accepted a prolonged paralysis of air travel caused by the shutdown on the markets, it's primarily the return of official economic statistics that is being welcomed. Until now, they had only trickled in," says Romane Ballin, bond manager at Auris Gestion.

"So much so that private data, usually relegated to the background, was enough to trigger a reaction from investors last week, notably the survey by the firm Challenger, Gray & Christmas. Although this survey is traditionally volatile and poorly correlated with figures from the Bureau of Labor Statistics (BLS), traders focused extensively on its conclusions: the labour market is deteriorating."

In the EU, industrial production, published this morning, rose slightly (+0.2% month-on-month), but less than expected (+0.6%).

Right now, the EUR/USD is trading at $1.1615.

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 recommended 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 is bearish.

Our entry point is $1.1614. The price target for our bearish scenario is $1.1013. To protect your capital, we advise placing a stop-loss order at $1.1721.

The expected profit for this forex strategy is 601 pips, and the potential loss is 107 pips.