EUR/USD Forex Technical Analysis – Higher as Reduced Fears of an Aggressive Fed Lifts Risk Sentiment

The Euro is edging higher against the U.S. Dollar on Monday on increasing hopes of the Federal Reserve slowing the pace of its interest rate hikes. The reduced fears of an aggressive Fed is lifting risk sentiment, reducing demand for the safe-haven greenback. The catalysts behind the early strength are cooling U.S. wages and a weaker U.S. services industry.

At 08:44 GMT, the EUR/USD is trading 1.0695, up 0.0049 or +0.46%. On Friday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $98.26, up $1.16 or +1.19%.

U.S. data showed a jump in the workforce and easing wage growth, while there were further signs of an economy slowing down, with the services industry activity contracting for the first time in more than 2-1/2 years in December.

After the reports, Fed funds futures traders increased bets the Fed will hike rates by 25bps at the conclusion of its two-day meeting on Feb. 1 after Friday’s data. A 25bps increase is now seen as a 73% probability, compared with 54% before the jobs report, with a 50bps hike now seen as a 27% probability.

Euro Zone Economic News

The Italian Monthly Unemployment rate held steady at 7.8%.

In other news, the Euro Zone Sentix Investor Confidence Index rose to -17.5 in January from -21.0 in December. Investors were looking for a reading of -18.5. Traders showed little reaction to the news.

At 10:00 GMT, the Euro Zone Unemployment Rate is expected to come in at 6.5%, unchanged.

Looking Ahead…

Additionally, highly anticipated consumer price data due on Jan. 12 could influence U.S. central bank policy. It is expected to show that headline prices were unchanged in December while core prices increased 0.3%.

It is going to take a huge miss in the CPI report to flip investors from a 25 basis point rate hike to a 50 basis point rate hike.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trending higher, following the confirmation of Friday’s closing price reversal bottom.

A trade through 1.0795 will change the main trend to up. A move through 1.0483 will reaffirm the downtrend.

The minor range is 1.0795 to 1.0483. The EUR/USD is trading on the strong side of its pivot at 1.0639, making it support.

The short-term range is 1.0290 to 1.0795. Its 50% level at 1.0542 is additional support.

Daily Swing Chart Technical Forecast

Trader reaction to the minor pivot at 1.0639 will determine the direction of the EUR/USD on Monday.

Bullish Scenario

A sustained move over 1.0639 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into the main top at 1.0795.

Bearish Scenario

A sustained move under 1.0639 will signal the presence of sellers. This could trigger a quick break into the short-term 50% level at 1.0542. This is the last support before the 1.0483 main bottom.