EUR/USD Forex Technical Analysis – Increasing Downside Momentum Puts .9864 – .9860 on Radar

The Euro is edging lower shortly before the European opening as U.S. Treasury yields firmed overnight and the U.S. Dollar appeared ready to resume its uptrend.

The single-currency is hovering just above more than 20-year lows as traders moved into the U.S. Dollar on increased bets the Fed would continue its aggressive tightening streak to curb red-hot inflation.

At 05:54 GMT, the EUR/USD is trading .9964, down 0.0015 or -0.15%. On Wednesday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $92.13, up $0.07 or +0.08%.

Urgency for Huge Fed Rate Hike Offsetting ECB’s Hawkish Tone

Earlier in the week, the EUR/USD spiked higher on the notion that the European Central Bank (ECB) would have to get aggressive with its rate hikes to combat soaring inflation.

At the same time, traders were pricing in a 50 – 75 basis point rate hike by the Fed at its September 20-21 meeting. Furthermore, traders were also betting that U.S. consumer inflation had peaked, dampening the need for large rate hikes starting in November.

All that changed on Tuesday with the release of higher-than-expected U.S. inflation data. Traders are now pricing in a 100 basis point rate hike by the Fed, making the U.S. Dollar the more attractive currency. This expected rate hike is larger than the one the ECB is supposed to deliver.

Short-Term Outlook

It’s going to be difficult for Euro bulls to gather enough steam to overtake this week’s high at 1.0198 now that the market is betting on a huge rate hike from the Fed. The way of least resistance is still down for the EUR/USD.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through .9864 will change the main trend to down. A move through 1.0198 will signal a resumption of the uptrend.

On the upside, resistance is layered at 1.0031, 1.0077 and 1.0116.

Daily Swing Chart Technical Forecast

Trader reaction to .9979 is likely to determine the direction of the EUR/USD on Thursday.

Bearish Scenario

A sustained move under .9979 will indicate the presence of sellers. Taking out this week’s low at .9956 will indicate the selling is getting stronger. This could trigger an acceleration into the support cluster at .9864 to .9860.

Bullish Scenario

A sustained move over .9979 will signal the presence of buyers. If this generates enough upside momentum then look for a possible surge into the first pivot at 1.0031. Overtaking this level could trigger a further move into the next pivot at 1.0077.