Counter-Trend EUR/USD Buyers Trying to Prevent Plunge to .9686

The Euro is trading nearly flat against the U.S. Dollar late Thursday in a volatile trade that saw the single-currency turn positive and negative several times throughout the session. The volatility is being fueled by trader reaction to Wednesday’s Federal Reserve interest rate hike, and today’s intervention by the Bank of Japan (BOJ) to boost the Yen. Overnight the BOJ held steady, but earlier today, the Bank of England raised its benchmark rate.

In the U.S., the yield on the 2-year Treasury note hovered around 4.1% on Thursday as the gap with the 10-year Treasury widened, further inverting the yield curve. Some analysts view short-term rates being significantly higher than long-term rates as a sign of a recession.

At 18:00 GMT, the EUR/USD is trading .9834, down 0.0003 or -0.03%. The Invesco CurrencyShares Euro Trust ETF (FXE) is at $90.77, down $0.19 or -0.21%.

Overseas, Euro Zone government bond yields hit new multi-year highs after the U.S. Federal Reserve was joined by three European central banks in raising rates on Thursday, with the Fed flagging a steeper than expected tightening path at upcoming meetings.

Other central banks are continuing to raise rates, with the Bank of England increasing its key interest rate by 50 basis points (bps) as expected. The Swiss and Norwegian central banks also raised rates on Thursday.

Germany’s 2-year bond yield, which is more sensitive to rate hike expectations, was 10 basis points higher at 1.858%, after earlier hitting its highest level since May 2011 at 1.897%.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through the intraday high at .9809 will signal a resumption of the downtrend. A move through 1.0051 will change the main trend to up.

The nearest minor range is 1.0051 to .9809. Its pivot at .9930 is resistance.

The short-term range is 1.0198 to .9809. Its 50% level at 1.0004 is additional resistance.

Short-Term Outlook

Trader reaction to .9837 is likely to determine the direction of the EUR/USD into the close on Thursday.

Bearish Scenario

A sustained move under .9837 will indicate the presence of sellers. The first downside target is .9809. Taking out this level will not only signal a resumption of the downtrend, but it could trigger an acceleration to the downside with the October 21, 2002 main bottom at .9686 the next target.

Bullish Scenario

A sustained move over .9837 will signal the presence of buyers. If this creates enough late session momentum then look for a drive into the pivot at .9930.

Side Notes

A close over .9837 will form a potentially bullish closing price reversal bottom. This won’t change the trend to up, but if confirmed, it could trigger the start of a 2 to 3 day counter-trend rally.