EUR/USD: Confirmation of Reversal Bottom Shifted Momentum

The Euro is trading higher early Thursday, confirming yesterday’s potentially bullish daily closing price reversal bottom. The chart pattern doesn’t change the trend, but it often indicates the buying is greater than the selling at current price levels.

This particular move may have been fueled by aggressive buyers defending the March bottom at 1.0806, or the lack of sellers as the single-currency approached this area on Wednesday.

At 04:50 GMT, the EUR/USD is trading 1.0906, up 0.0014 or +0.13%. On Wednesday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $100.86, up $0.51 or +0.51%.

Treasury Yield Reversal Setting the Tone

The short-covering in the Euro is likely being fueled by a weaker U.S. Dollar, which posted a potentially bearish closing price reversal top against a basket of major currencies the previous session. The catalyst behind that move was a drop in U.S. Treasury yields.

The benchmark 10-year Treasury yield was 2.712% at the close on Tuesday. It rose steadily earlier this month – driven by expectations of more aggressive Federal Reserve tightening to combat inflation – and reached as high as 2.836% on Tuesday, ahead of U.S. inflation figures.

However, while high, the U.S. inflation data was not quite as some had feared, which observers said caused yields to pause.

ECB Meeting On-Tap

Traders are waiting for the European Central Bank (ECB) meeting later in the day. Policymakers could reiterate previous dovish messages, or take on a more hawkish tone as their global peers. A change in sentiment toward hawkish could trigger a spike in prices by the EUR/USD.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, however, momentum is trending higher.

The momentum turned higher earlier today when buyers took out yesterday’s high at 1.0894. This confirmed Wednesday’s closing price reversal bottom.

A trade through 1.1185 will change the main trend to up. A move through 1.0809 will negate the closing price reversal bottom and signal a resumption of the downtrend.

The minor range is also down. A trade through 1.0933 will change the minor trend to up. This will confirm the shift in momentum.

The minor range is 1.0933 to 1.0809. Its 50% level or pivot at 1.0871 is support.

The short-term range is 1.1185 to 1.0809. If the minor trend changes to up then look for the rally to possibly extend into its 50% level at 1.0997.

Daily Swing Chart Technical Forecast

The direction of the EUR/USD early Thursday will be determined by trader reaction to 1.0871.

Bullish Scenario

A sustained move over 1.0871 will indicate the presence of buyers. If this creates enough upside momentum then look for a test of the minor top at 1.0933.

Taking out 1.0933 will indicate the buying is getting stronger with the next target the pivot at 1.0997. This is a potential trigger point for an acceleration to the upside.

Bearish Scenario

A sustained move under 1.0871 will signal the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into the March 7 main bottom at 1.0806. This is a potential trigger point for an acceleration to the downside with the next major target the March 23, 2020 main bottom at 1.0636.