EUR/USD: Appetite for risk is contracting, the euro suffers

The Euro, one of the most reliable barometers of risk appetite in financial markets, was rattled by the markets' very cautious stance following a solid earnings report from Nvidia, the leading light of American tech, which alone measures the demand for AI, the major underlying trend in fund managers' jargon.

Despite the company specialising in high-performance computing chips exceeding market expectations in terms of sales and profitability, and despite already posting stratospheric prospects, this did not prevent Wall Street from continuing its legitimate questions about the valuations of the major players in the AI ​​ecosystem. The Nasdaq Composite lost 2.14% yesterday, and the "fear" index, the famous VIX, exceeded the 25 mark.

Another significant event yesterday was the release, 47 days late due to the government shutdown, of the federal employment report for September. Note that the October data will never be published and that the next report (November) will be released in early December. This will provide important benchmarks, particularly for anticipating the Fed's interest rate trajectory, the tone of which has become more cautious in recent days.

The October NFP confirms a deterioration in the health of private-sector employment in the United States, but much less severe than expected. While the unemployment rate rose to 4.3% of the labor force, the number of jobs created, which had plummeted in August, rebounded to 120,000.

"Overall, it's reasonable to think that the US job market remains sluggish after the summer, but that it isn't deteriorating significantly further, which is our scenario. That said, the data isn't clear enough to bridge the gap between the diverging opinions within the Fed. The risk of a sharper deterioration in employment in the coming months remains, leading some members to favor lower interest rates in the short term. But the absence of a sharp decline in employment allows for waiting for more data on employment and inflation before taking action, which is prompting some members to prefer a patient approach," explains Xavier Chapard, Strategist at LBPAM, linking this to the next major market event: a monetary policy meeting.

"And the Fed won't have any new official employment data until its next meeting on 10 December, since the US Bureau of Labour Statistics (BLS) announced it would only release the November employment report and October job creation figures on 16 December."

Force traders will therefore be proceeding cautiously through a thick monetary fog. According to the CME Group's FedWatch tool, the probability of a 25 basis point cut in federal interest rates on December 10 is 70.6%, a level close to 66% at the middle of last week. These probabilities reached a low of nearly 31% at the beginning of the week, and it is precisely this intense volatility that is unsettling currency traders.

On the statistical front, there was disappointment with the initial estimates of the German manufacturing PMI at 48.39, significantly below expectations for November. The situation is hardly any brighter in France.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, offered the following additional insights: "Regarding the performance of their manufacturing sectors, Germany and France are following a similar trajectory, with equally negative trends in both countries, whose respective PMI indices have fallen sharply compared to October. German and French companies are suffering from weak demand and a decline in new orders. In terms of production, while German industry has managed to remain in expansion territory, the activity of French manufacturers has declined, with the contraction even accelerating during the month. A stabilization of the political situation could revive investment and, in the long term, foster a rebound in production. However, political instability remains significant in France, eliminating any hope of a substantial rebound in eurozone growth in the fourth quarter."

Right now the pair is trading at $1.1508.

KEY TECHNICAL ELEMENTS
The upward trendline that had prevailed until now (in black on the chart) has now been broken, with a confirming pullback. A bearish outlook is suggested below this trendline, while the relative strength index is collapsing. 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.