EUR/USD: Bullish Run Meets Resistance as US Dollar Bounces Back

Highlights

• Chart pattern suggests short-term momentum shift to downside
• ECB officials support more interest rate hikes
• Divergence in monetary policy favors the Euro

Overview

The Euro formed a potentially bearish closing price reversal top on Friday as the US Dollar recovered after traders determined that some March U.S. retail sales components were not as weak as some economists had feared, while a key Federal Reserve official warned that the U.S. central bank needs to continue hiking interest rates to bring down inflation.

At 21:00 GMT, the EUR/USD is trading 1.0994, down 0.0053 or -0.48%. The Invesco CurrencyShares Euro Trust ETF (FXE) settled at $101.54, down $0.44 or -0.43%. Earlier in the session, the single-currency touched its highest level against the U.S. Dollar since last April.

ECB’s Hawkish Stance vs Fed’s Dovish Stance Boosts Euro’s Appeal

Comments from European Central Bank (ECB) officials throughout the week generally supported the need for more interest rate hikes from the central bank to tackle inflation. Meanwhile, U.S. consumer and producer inflation figures showed inflation slowing.

The data convinced traders that the Fed will raise rates 25 basis points in May before pausing its rate hiking campaign. Additionally, some investors started to price in a series of Fed rate hikes before the end of the year. The divergence in monetary policy favored the Euro, which posted a strong weekly gain against its U.S. counterpart.

Daily EUR/USD Technical Analysis

The main trend is up according to the daily swing chart. However, Friday’s closing price reversal top suggests momentum may be getting ready to shift to the downside.

A trade through 1.1076 will negate the chart pattern and signal a resumption of the downtrend. A move through 1.0832 will change the main trend to down.

The short-term range is 1.0832 to 1.1076. Its retracement zone at 1.0954 – 1.0925 is the first downside target. Watch for a technical bounce on the first test of this area. Since the main trend is up, buyers are likely to come in to defend that zone. If 1.0925 fails as support then look for the selling to possibly extend into the main bottom at 1.0832.

The major upside target is the March 31, 2022 main top at 1.1185.

Daily EUR/USD Technical Forecast

A trade through 1.0972 will confirm the closing price reversal top. This could trigger the start of a 2 to 3 correction. Trader reaction to 1.0954 and 1.0925 will set the early tone on Monday. Look for an early upside bias on a sustained move over 1.0954 and for a downside bias on a sustained move under 1.0925.