EUR/USD Monthly Technical Analysis for April 2016

The EUR/USD finished sharply higher in March. Three pieces of news helped generate the upside momentum in March.

The Forex pair started trading the month with a rally ahead of the March 10 European Central Bank meeting. ECB President Mario Draghi had been hinting for weeks that the central could announce a blockbuster stimulus plan after disappointing investors in December.

The ECB hit the market with a huge stimulus package, sending the Euro down initially to 1.0821. The Euro, however, rebounded against the U.S. Dollar after ECB chief Draghi indicated that further interest rate cuts in the Euro Zone are unlikely.

The ECB dropped its main refinancing rate to zero, from 0.05%, while expanding its quantitative easing asset-buying program to 80 billion Euros a month from 60 billion Euros and cutting its deposit rate to -0.4% from -0.3%.

The EUR/USD surged for a second time on March 16 after the U.S. Federal Reserve scaled down its own expectations of the number of U.S. rate hikes over the next nine months. The Fed effectively cut the number of expected rate hikes from four to two.

Another spike to the upside took place on March 29 after Federal Reserve Chair Janet Yellen signaled interest rates would remain low amid global growth uncertainty and low crude oil prices. Yellen went on to say that it was appropriate for the Fed to proceed “cautiously” in hiking interest rates.

“Developments abroad imply that meeting our objectives for employment and inflation will likely require a somewhat lower path for the federal funds rate than was anticipated in December,” when the Fed raised rates for the first time in a decade, Yellen said at the Economic Club of New York.

“Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy,” Yellen said.

Technically, the main trend is down according to the monthly swing chart. However, the strong close has put the Forex pair in a position to continue the rally in April and perhaps challenge the August main top at 1.1712 over the near-term. A trade through this top will change the main trend to up.

The short-term range is 1.1712 to 1.0539. Its 50% level comes in at 1.1126. This price is essentially controlling the short-term direction of the market. A sustained move over this level will indicate the presence of buyers.

Based on the close at 1.1378, the direction of the market is likely to be determined by trader reaction to the downtrending angle at 1.1392.

A sustained move over 1.1392 will signal the presence of buyers. This could trigger a further rally into the next downtrending angle at 1.1552. This is the last potential resistance angle before the 1.1712 main top.

The top at 1.1712 is not only a main top, but also a trigger point for an acceleration to the upside with the next major target a downtrending angle at 1.2153. This is followed closely by the major 50% level at 1.2228. Due to volatility limitations, these prices are not likely to be touched this month.

The inability to overcome the angle at 1.1392 will indicate the presence of sellers. This could lead to fresh shorting or profit-taking. If it’s strong enough, the market could fall back into an uptrending support angle at 1.1179 or the short-term pivot at 1.1126.

Since the Fed is unlikely to raise rates in April, look for the rally to continue especially if buyers can sustain a move over 1.1392.