Early Weakness Has EUR/USD in Position to Challenge 5-Year Low

The Euro began the week under pressure from a stronger U.S. Dollar. The single-currency is being weighed down by sharply rising U.S. yields and by a drop in investor sentiment fueled by lockdowns in China, war in Europe’s backyard and fear about higher domestic interest rates.

At 02:27 GMT, the EUR/USD is trading 1.0518, down 0.0028 or -0.27%. On Friday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $97.72, down $0.01 or 0.01%.

The EUR/USD is close to a five-year low while the benchmark 10-year Treasury yield stood at its highest level since 2018 at 3.1464%. Last week, the U.S. Federal Reserve hiked its benchmark funds rate 50 basis points and strong U.S. jobs data reinforced bets on further big hikes.

In domestic news, the European Central Bank should raise its deposit rate back into positive territory this year, French central bank chief Francois Villeroy de Galhau said on Friday, comments that point to his support for at least three rate hikes in 2022.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.0472 will signal a resumption of the downtrend. A move through 1.0642 will change the main trend to up.

The minor range is 1.0472 to 1.0642. The EUR/USD is currently trading on the weak side of its pivot at 1.0557, making it resistance.

The short-term range is 1.0936 to 1.0472. If the main trend changes to up then its retracement zone at 1.0704 to 1.0759 will become the next upside target zone.

The intermediate range is 1.1185 to 1.0472. Its retracement zone comes in at 1.0829 to 1.0913.

Daily Swing Chart Technical Forecast

The direction of the EUR/USD early Monday is likely to be determined by trader reaction to 1.0557.

Bearish Scenario

A sustained move under 1.0557 will indicate the presence of sellers. The first downside target is Friday’s low at 1.0483, followed closely by the main bottom at 1.0472.

Taking out 1.0472 will reaffirm the downtrend and could trigger an acceleration into the January 3, 2017 main bottom at 1.0339.

Bullish Scenario

A sustained move over 1.0557 will signal the presence of buyers. If this creates enough upside momentum then look for a surge into the main top at 1.0642. Taking out this level will change the main trend to up. This could lead to an extension of the rally into 1.0704 – 1.0759.