EUR/USD Climbing Toward 1.1516 – 1.1608 Retracement Zone

The Euro continued to climb against the U.S. Dollar on Friday, putting it in a position to post its best weekly performance since the COVID-19 pandemic began in March 2020. The catalyst behind the massive short-covering rally is a hawkish turn by the European Central Bank (ECB) at yesterday’s policy meeting.

At 12:27 GMT, the EUR/USD is trading 1.1474, up 0.0035 or +0.30%. On Thursday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $106.20, up $1.17 or +1.11%.

On Thursday, President Christine Lagarde acknowledged mounting inflation risks and opened the door to potential rate hikes later this year.

“That the ECB has now signaled a more urgent path towards hiking rates for the first time in a decade is… of ground-breaking importance,” Deutsche Bank currency analysts said in a note.

“Europe has lived with negative rates for nearly a decade… When the ECB signals that this can change, it matters. It will take a long time for the full impact to be realized, and we should expect a few surprises along the way.”

Traders are also bracing for U.S. employment data, due to be released at 13:30 GMT, on Friday. The report could give investors clues as to how quickly the Federal Reserve will tighten policy. The markets are now factoring in as many as five U.S. rate hikes this year.

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 the upper level of its retracement zone at 1.1407 to 1.1474.

The main range is 1.1909 to 1.1122. Its retracement zone at 1.1516 to 1.1608 is the next upside target. Sellers could come in on the first test of this area despite the change in trend.

Daily Swing Chart Technical Forecast

The direction of the EUR/USD on Friday is likely to be determined by trader reaction to 1.1474.

Bullish Scenario

A sustained move over 1.1474 will indicate the presence of buyers. Taking out the main top at 1.1483 will change the main trend to up and could trigger a surge into 1.1516.

Sellers could come in on the first test of 1.1516, but overcoming it could trigger an acceleration to the upside with a resistance cluster at 1.1608 the next likely target.

Bearish Scenario

A sustained move under 1.1474 will signal the presence of sellers. If this move creates enough downside momentum then look for the selling to possibly extend into 1.1407.

Taking out 1.1407 will indicate the selling pressure is getting stronger with 1.1302 the next likely target.