EUR/USD Forex Technical Analysis – Aggressive Short-covering Driving Prices Higher

The Euro is trading higher against the U.S. Dollar early Monday as traders continued to react to President Trump’s criticism of the Fed policy and its influence on the direction of the U.S. Dollar. Late last week, Trump expressed discomfort with the Greenback’s strength. Trump said he was worried that additional rate hikes by the Fed this year and the strong dollar could hurt the U.S. economy.

At 0514 GMT, the EUR/USD is trading 1.1733, up 0.0011 or +0.10%.

Daily Swing Chart Analysis

The main trend is up according to the daily swing chart. The trend changed to up earlier today when buyers took out the last swing top at 1.1746. However, there wasn’t much of a follow-trade through this top.

The EUR/USD is also being driven higher by the momentum created by the July 19 closing price reversal bottom. This chart pattern tends to generate a minimum 2 to 3 day rally. Since it led to a change in trend to up, it could continue beyond this time period.

The main range is 1.1851 to 1.1509. Its retracement zone is 1.1680 to 1.1720. This zone is controlling the near-term direction of the EUR/USD. Holding above this zone is helping to generate an upside bias. Traders should also treat the Fib level at 1.1720 and the 50% level at 1.1680 as support.

Daily Swing Chart Forecast

Based on the early price action, the direction of the EUR/USD is likely to be determined by trader reaction to the Fib level at 1.1720.

A sustained move over 1.1720 will indicate the presence of buyers. If this move can generate enough upside momentum, we could see a retest of today’s intraday high at 1.1752.

Taking out 1.1752 could trigger an acceleration to the upside with the next target the July 9 main top at 1.1791.

A sustained move under 1.1720 will signal the presence of sellers. If sellers come in strong then look for a potential acceleration into the 50% level at 1.1680. Since the main trend is up, buyers could start to come in on a break into this level.

EUR/USD traders are conflicted at this time because the divergence in monetary policy between the U.S. Federal Reserve and the European Central Bank is bearish. However, Trump’s comments late last week are encouraging short-sellers to cover positions while they sort out the details.