EUR/USD Forex Technical Analysis – Higher on Posturing Ahead of Fed Interest Rate Announcements

The Euro is higher on Tuesday after reversing earlier weakness. The catalyst behind the move is an unexpected drop in U.S. Treasury yields. The price action suggests investors are lightening up on the short-side ahead of the start of the Federal Reserve’s two-day meeting, which begins later today.

Despite the intraday turnaround, the Euro is still expected to struggle as traders prepared for aggressive interest rate hikes from the Federal Reserve on Wednesday.

At 12:20 GMT, the EUR/USD is trading 1.0447, up 0.0039 or +0.37%. On Monday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $96.36, down $0.98 or -1.01%.

Trader’s Looking for 75-Basis Point Rate Hike from Fed

After Friday’s surprisingly strong U.S. consumer inflation report, traders are now looking for the Fed to raise interest rates 75-basis points at the conclusion of the two-day meeting on Wednesday. According to the CME’s Fedwatch Tool, traders are expecting 75-basis point rate hikes in June and July, and a 50-basis-point rise in September.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through the intraday low at 1.0397 will signal a resumption of the downtrend. A move through 1.0774 will change the main trend to up.

The minor range is 1.0774 to 1.0397. Its retracement zone at 1.0586 to 1.0630 is the nearest upside target and possible resistance.

Daily Swing Chart Technical Forecast

Trader reaction to 1.0397 is likely to determine the direction of the EUR/USD into the close on Tuesday.

Bullish Scenario

A sustained move over 1.0397 will indicate the presence of buyers. If this move creates enough upside momentum over the near-term, then look for a surge into the minor retracement zone at 1.0586 – 1.0630. Since the main trend is down, sellers are likely to come in following a test of this area.

Bearish Scenario

A sustained move under 1.0397 will signal the presence of sellers. This could lead to a retest of the intraday low of 1.0397. Taking out this level will indicate the selling pressure is getting stronger with the May 13 main bottom at 1.0354 the next target, followed by the January 3, 2017 main bottom at 1.0339.