EUR/USD Forex Technical Analysis – Base-Building Process Continues with Reaction to 1.0557 Setting Tone

The Euro is trading flat against the U.S. Dollar early Thursday after comments from European Central Bank officials suggested a gradual rather than rapid-rate hike path, taking the edge off the aggressive rate-rise bets that drove borrowing costs across the bloc to multi-year highs as recently as Monday.

Meanwhile, in the United States, data showing U.S. annual inflation rose 8.3% in April, down from 8.5% a month earlier, but above analyst expectations for an 8.1% rise, triggered a wave of selling in bonds.

At 02:59 GMT, the EUR/USD is trading 1.0514, up 0.0001 or +0.01%. On Wednesday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $97.39, down $0.20 or -0.20%.

The price action suggests the Fed is likely to maintain its series of 50-basis-point rate hikes in June and July, but a 75-basis-point hike from the Federal Reserve at next month’s meeting is likely off the table at this time.

The U.S. Consumer Price Index (CPI) data is likely to keep the longer-term uptrend for the U.S. Dollar intact, but the easing of pressures to raise rates 75-basis-points could put a cap on the greenback. Consequently, this could trigger a short-term rally in the Euro, but gains are likely to be limited.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.0472 will signal a resumption of the downtrend. A move through 1.0642 will change the main trend to up.

The minor range is 1.0472 to 1.0642. The EUR/USD is currently trading on the weak side of its pivot at 1.0557, making it potential resistance.

The short-term range is 1.0936 to 1.0472. If the main trend changes to up then look for a surge into its retracement zone at 1.0704 to 1.0759.

Daily Swing Chart Technical Forecast

The direction of the EUR/USD on Thursday is likely to be determined by trader reaction to 1.0557.

Bearish Scenario

A sustained move under 1.0557 will indicate the presence of sellers. Taking out the low at 1.0483 will indicate the selling is getting stronger with the next target a main bottom at 1.0472.

A trade through 1.0472 will reaffirm the downtrend and could trigger an acceleration into the January 3, 2017 main bottom at 1.0339.

Bullish Scenario

A sustained move over 1.0557 will signal the presence of buyers. This could trigger a counter-trend rally into the main top at 1.0642.

Taking out 1.0642 will change the main trend to up. This could trigger an acceleration into 1.0704 to 1.0759.