EUR/USD: Traders will disect the PCE price report

The euro's slide against the dollar faced no resistance amidst an increasingly strained interest-rate environment, leaving little room for risk appetite in currency traders' allocation decisions. The single currency - which, it is worth noting, hit a high of $1.1711 on 20 August - is currently trading at $1.13586.

The yield on the French 10-year bond shed 0.03 percentage points but remains high at 4.77%. Crucially, the spread against the equivalent German bond - a key barometer of market stress - held steady at 1.3 percentage points, a level unseen for this benchmark since the European sovereign debt crisis.

"Markets look beyond mere debt levels. They also monitor growth, the ability to control spending, institutional stability, and, above all, a government's capacity to actually implement the decisions it announces," explains Fidel Martin, President of Exoe, a trading desk serving asset management pros.

"It would be an exaggeration to claim that markets are currently 'dictating' France's budget. Yet, it would be equally imprudent to ignore their growing influence. Perhaps the real question isn't whether markets will 'punish' France - that kind of language is too dramatic to describe what is actually unfolding. Market pressure can take hold much more quietly."

In the US, the 10-year yield remained elevated at 5.24% ahead of key data releases scheduled for 16:00 (EU time): new GDP figures and the PCE (Personal Consumption Expenditures) price index - the Fed's preferred measure for gauging inflation. This is all while awaiting Friday's highly anticipated federal NFP report on private-sector employment; confirmation of labor market strength would further bolster the likelihood of another 25-basis-point hike in the federal funds rate before year-end.

CME Group's FedWatch tool puts the probability of such a rate hike at 43.8% following the next FOMC (Federal Open Market Committee) meeting on 27 October. As a reminder, the Federal Reserve already raised its benchmark rates by 25 basis points earlier this autumn.

"The rise in yields has also been fueled by particularly solid activity indicators. The US composite PMI jumped to 58.3 in September from 56 in August, hitting its highest level in over five years. The contrast is striking: US consumer confidence fell to 48 - a four-month low - while one-year inflation expectations rose from 4% to 4.7%," explains Sebastien Grasset, Head of Asset Management at Auris Gestion.

"The market is therefore making a bet: that future profit growth will win the race against the rising cost of capital. This week will put that conviction to the test: US PCE and GDP data on Wednesday, ISM on Thursday, and employment figures on Friday; plus corporate updates from Micron and Accenture. It's a simple face-off: profits versus interest rates. And underlying that, AI versus inflation."

US PCE price data and growth figures are due at 16:00.

Right now, the EUR/USD is trading at $1.13575.

KEY TECHNICAL FACTORS
Following a period of sideways movement, the increase in bearish volatility observed and measured on 13 September, indicated a breakout direction that allows us to re-enter short positions on this major currency pair. The rise in volatility on 15 September - coinciding with a break below the 50-day moving average (shown in orange) - supports this scenario, as does the sharp bearish acceleration on 22 September and the precise pullback on 24 September to the $1.1411 level, which has now shifted to major resistance.

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

Our entry point is $1.1354. The target price for our bearish scenario is $1.1013. To protect invested capital, we recommend placing a stop-loss order at $1.1456.

The expected return for this forex strategy is 341 pips, with a risk of loss of 102 pips.