EUR/USD Forecast – Fed Rate Hike Fears Pressure Common Currency

The Euro lost ground to the U.S. Dollar in a choppy trade on Friday, extending its sharp losses in the previous session as risk appetite soured. Meanwhile, investors grappled with the prospect that borrowing costs still have a long way to climb.

On Friday, the EUR/USD settled at 1.0588, down 0.0039 or -0.37%. The Invesco CurrencyShares Euro Trust ETF (FXE) finished at $97.76, down $0.30 or -0.31%.

US Business Activity Shrinks

In economic news, the greenback briefly fell after data showed U.S. business activity shrank further in December as new orders slumped to their lowest in more than 2-1/2 years, while softening demand helped to significantly cool inflation.

Euro Zone Business Activity Falls at Slower Rate, Inflation Eases

Euro Zone business activity shrank at the slowest pace in four months in December, suggesting a likely recession ahead will be shallower than previously thought, a survey showed on Friday, while prices rose at the most modest rate in about a year.

Fed’s Williams Fed Could Keep Raising Rates

Hawkish comments from Fed Chairman Jerome Powell earlier in the week put a cap on the EUR/USD. He said policymakers expected U.S. rates to rise further and stay elevated for longer.

On Friday, New York Fed President John Williams upped the hawkish rhetoric, driving the EUR/USD lower. He said it remains possible the U.S. central bank raises interest rates more than it currently expects next year. The Fed has projected the peak fed funds rate at 5.1%.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum is trending lower. A trade through 1.0736 will signal a resumption of the uptrend. A move through 1.0443 will change the main trend to down.

The minor trend is also up. However, a trade through 1.0736 will shift momentum to the upside.

The minor range is 1.0443 to 1.0736. Its pivot at 1.0590 is potential support. The short-term range is 1.0290 to 1.0736. Its 50% level at 1.0513 is another potential support level.

Daily Swing Chart Technical Forecast

Trader reaction to the minor pivot at 1.0590 is likely to determine the direction of the EUR/USD early Monday.

A sustained move over 1.0590 will indicate the presence of buyers. If this move creates enough upside momentum then look for a possible retest of the main top at 1.0736.

A sustained move under 1.0590 will signal the presence of sellers. This could extend the selling into the short-term pivot at 1.0513. This is the last potential support before the 1.0443 main bottom.