EUR/USD Forex Technical Analysis – Failed Rally Could Trigger Pull-back into 1.0916 – 1.0883

The Euro rose against the U.S. Dollar on Friday as investors continued to increase bets on a sooner-than-expected rate cut by the U.S. Federal Reserve. The European Central Bank (ECB) is also expected to make a rate cut later in the year, but since U.S. rates are higher than Euro Zone rates, the greatest impact by the move will be on the greenback.

On Friday, the EUR/USD settled at 1.1030, up 0.0030 or +0.27%.

The idea that the Fed would cut rates was supported by dovish comments from Fed Chair Jerome Powell on Friday. He said the central bank will “act as appropriate” to support the economy in the face of risks posed by the coronavirus outbreak, though he said the economy remained in solid condition. Traders read this to mean the central bank could cut rates as soon as its March meeting.

The Euro’s gains may have been limited by a report that showed long-term Euro Zone inflation expectations fell to a record low as concerns about the spread of coronavirus intensified.

In other news, volatility in the Euro-dollar exchange rate surged to its highest in more than a year on Friday, as growing fears over a coronavirus outbreak raised recession fears and fuelled big currency moves.

Daily Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trending higher. A trade through 1.1095 will change the main trend to up.

A trade through 1.0778 will signal a resumption of the downtrend. This is highly unlikely but the EUR/USD will be up seven sessions from its most recent main bottom on Monday, which will put it inside the window of time for a closing price reversal top.

The first main range is 1.1239 to 1.0778. Its retracement zone at 1.1007 to 1.1062 is currently being tested.

The second main range is 1.1413 to 1.0778. Its retracement zone at 1.1096 to 1.1170 is the next potential upside target.

The short-term range is 1.0778 to 1.1053. Its retracement zone at 1.0916 to 1.0883 is the first potential downside target and support area.

Short-Term Outlook

The six-day rally has been impressive, but I’ll be impressed more if the EUR/USD can strengthen enough to change the main trend to up and take out the retracement zones currently providing resistance.

If the sellers continue to come in to stop the rally, then look for a pullback into the short-term retracement zone at 1.0916 to 1.0883. The test of this zone will be critical to the chart pattern.

Aggressive counter-trend buyers are likely to re-emerge on the first test of 1.0916 to 1.0883. They will be trying to form a secondary higher bottom. This will be a potentially bullish formation.

If the selling is strong enough to take out 1.0883 then 1.1053 will become a new secondary lower top. This will put the EUR/USD in a weak position.