EUR/USD: the downward bias remains unchanged

The euro fell back against the dollar on Friday, following a monthly employment report whose robust data reinforced the already high probability of monetary tightening next month.

Key takeaways from the October Non-Farm Payrolls (NFP) report include: the figures exceeded expectations across the board - the unemployment rate dropped to 4% of the labour force, job creation surged to 165,000, and average hourly earnings rose by 0.4%.

These results support the case for a 25-basis-point interest rate hike at the final Federal Open Market Committee meeting of the year next month. This is further bolstered by a stronger-than-expected rebound in U.S. consumer confidence in November, according to preliminary estimates from the University of Michigan survey.

"The increase in hiring has also supported wages, which rose more than expected - up 3.2% year-on-year and 0.4% month-on-month. Central bankers will be paying close attention to this latter figure. However, wage growth likely remains below the level that would allow companies to fully pass on rising production costs to their final prices," explains Christian Scherrmann, U.S. Economist at Deutsche AM.

"This report keeps a December rate hike on the table, even as financial conditions have recently tightened and markets digest the results of the midterm elections." The CME Group's FedWatch tool indicates a probability of over 80% for a 25-basis-point hike in the federal funds rate on December 9, following the final Federal Open Market Committee (FOMC) meeting of the year.

This outlook is reinforced by another key statistic released on Friday: U.S. consumer confidence, which rebounded more strongly than anticipated in November, according to the preliminary estimate from the University of Michigan survey. The index reached 51, up from 48 in October - surpassing the stability that economists polled by Reuters had expected. The component measuring consumer expectations rose to 51, compared to 48.8 the previous month and an anticipated 49.5.

Meanwhile, the euro remains weighed down by the fiscal situation in France - the "dumb student" of the Eurozone. According to economists at Asteres, "To break out of this trend, France needs robust growth. This would reassure markets regarding debt sustainability, reduce the risk premium on French sovereign debt, and, over time, lower financing costs for both the state and businesses. However, such growth must be driven by sustainable engines: productive investment, industry, and innovation."

In the immediate term, currency traders have just received the Sentix Eurozone Investor Confidence index, which came in at 2.3 - a slight decline, yet still above the target level.

KEY TECHNICAL FACTORS
With the 20-day moving average (shown in dark blue) - a valuable technical benchmark - now being breached, we are resuming short positions on this major currency pair. A tight stop-loss will, however, be applied.

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

Our entry point is $1.1194. The price target for our bearish scenario is $1.0735. To protect your capital, we recommend placing a stop-loss order at $1.1336.

The potential profit for this forex strategy is 459 pips, while the risk of loss is 142 pips.