Bearish Chatter Could Drive EUR/USD into 1.1303 – 1.1260

The Euro is under pressure against the U.S. Dollar on Tuesday after European Central Bank (ECB) President Christine Lagarde tried to rein in interest rate hike expectations that drove the common currency to a three week-high last week.

At 14:20 GMT, the EUR/USD is trading 1.1422, down 0.0018 or -0.15%. On Monday, the Invesco CurrencyShares Euro Trust (FXE) settled at $106.22, down $0.20 or -0.19%.

The ECB’s hawkish twist last week took markets by surprise and sent yields on peripheral Euro Zone debt surging as investors worried about the impact of faster-than-expected monetary tightening on the bonds of the most indebted countries.

But on Monday, Lagarde struck a more cautious tone, saying high inflation is unlikely to get entrenched and ECB council member Pablo Hernandez de Cos on Tuesday said any central bank move “has to be gradual”.

Euro Zone bond yields edged lower on Tuesday but many in the currency market were still concerned that a sharp rise in bond yields could weigh on the prospects of a broad-based economic recovery.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.1483 will change the main trend to up. A move through 1.1122 will signal a resumption of the downtrend.

The short-term range is 1.1692 to 1.1122. The EUR/USD is currently testing its retracement zone at 1.1407 to 1.1474.

The minor range is 1.1122 to 1.1483. Its retracement zone at 1.1303 to 1.1260 is the primary downside target.

On the upside, the main resistance is the retracement zone at 1.1516 to 1.1608.

Daily Swing Chart Technical Analysis

The direction of the EUR/USD into the close on Tuesday is likely to be determined by trader reaction to the 50% level at 1.1407.

Bullish Scenario

A sustained move over 1.1407 will indicate the presence of buyers. If this creates enough upside momentum then look for a labored rally into 1.1474, followed closely by 1.1483 and 1.1516. This is a potential trigger point for an acceleration to the upside.

Bearish Scenario

A sustained move under 1.1407 will signal the presence of sellers. This could trigger an acceleration to the downside with 1.1303 to 1.1260 the next major target.