EUR/USD Forex Technical Analysis – Hovering Near 20-Year Low as Europe’s Energy Woes Weigh

The Euro is edging slightly higher against the U.S. Dollar early Thursday, hovering near a 20-year low, as Europe’s energy troubles continue to raise concerns over the economic direction of the region. Compounding the issue is the widely expected rate hike from the European Central Bank (ECB) on July 25. Investors are concerned that tightening monetary policy for the first time since 2011 could accelerate the economy into recession.

Needless to say, the ECB is facing the monumental task of combating red-hot inflation without stifling economic growth.  Finding the right balance will be a difficult task. “Europe’s energy cost squeeze is a greater threat to the Euro Zone growth outlookm according to Westpac strategists.

At 03:24 GMT, the EUR/USD is trading 1.0207, up 0.0026 or +0.26%. On Wednesday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $94.19, down $0.77 or -0.81%.

Helping to keep a lid on the EUR/USD late in the session on Wednesday was the  FOMC monetary policy minutes. In its minutes, Federal Reserve officials at their June meeting said another interest rate increase of 50 to 75 basis points is likely at the July meeting.

Additionally, policymakers “recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist,” the minutes said.

Short-Term Outlook

Trader reaction to 1.0181 is likely to determine the direction of the EUR/USD early Thursday.

Bearish Scenario

A sustained move under 1.0181 will indicate the presence of sellers. Taking out 1.0162 will reaffirm the downtrend. This will also keep the Forex pair on course for a near-term test of the December 2, 2002 main bottom at .9860.

Bullish Scenario

A sustained move over 1.0181 will signal the presence of buyers. If this move is able to generate enough upside momentum then look for a possible short-covering rally into the January 3, 2017 main top at 1.0339.

Since the main trend is down and old bottoms tend to become new tops, look for selling on the first test of 1.0339. Overtaking it, however, could lead to an extension of the rally into the minor pivot at 1.0389.

Side Notes

The fundamentals are overwhelmingly bearish. However, there is still the possibility of a short-covering rally on Thursday if short-sellers decide to square positions ahead of Friday’s U.S. Non-Farm Payrolls report.