EUR/USD Forex Technical Analysis – ECB Rate Hike May Be Priced In, Putting Risk to Downside

The Euro moved higher against the U.S. Dollar on Wednesday as traders positioned themselves ahead of the European Central Bank (ECB) policy meeting on Thursday.

The ECB is widely expected to announce an end to its asset purchase program at the meeting, setting the stage to begin the tightening cycle in July.

On Wednesday, the EUR/USD settled at 1.0716, up 0.0014 or +0.13%. The Invesco CurrencyShares Euro Trust ETF (FXE) finished at $99.15, up $0.04 or +0.04%.

Ahead of the announcement of the July rate hike, the money markets are predicting around 75 basis points of tightening by September.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum is trending lower. A trade through the two main tops at 1.0764 and 1.0787 will reaffirm the uptrend. A move through 1.0627 will change the main trend to down.

The minor trend is down. This is controlling the momentum.

The minor range is 1.0787 to 1.0627. The EUR/USD is currently straddling its pivot at 1.0707.

The main range is 1.1185 to 1.0354. Its retracement zone at 1.0770 to 1.0868 is resistance. This zone stopped the rally at 1.0787 on May 30.

The short-term range is 1.0354 to 1.0787. If the main trend changes to down then look for a test of its retracement zone at 1.0571 to 1.0519.

Daily Swing Chart Technical Forecast

Trader reaction to 1.0707 is likely to determine the direction of the EUR/USD early Thursday.

Bullish Scenario

A sustained move over 1.0707 will indicate the presence of buyers. This could lead to a labored rally with upside targets lined up at 1.0764, 1.0770 and 1.0787.

Taking out 1.0787 could trigger an acceleration to the upside with 1.0868 the next major target.

Bearish Scenario

A sustained move under 1.0707 will signal the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into 1.0652, followed by 1.0627.

A trade through 1.0627 could trigger an acceleration into 1.0571 to 1.0519.

Side Notes

Look for heightened volatility following the ECB interest rate decision. A July rate hike announcement has already been priced into the EUR/USD for weeks so the surprise will be to the downside. Furthermore, the trade could be limited due to Friday’s U.S. consumer inflation report that could determine future Fed interest rate moves.