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James Hyerczyk

The Euro finished sharply lower against the U.S. Dollar on Friday as investors adjusted positions following the release of a better-than-expected U.S. Non-Farm Payrolls. The sideways price action most of last week indicated that traders were going into the report with a slight upside bias. When the headline number beat the forecasts, longs liquidated and the currency plunged.

On Friday, the EUR/USD settled at 1.1226, down 0.0059 or -0.53%.

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The primary driver of the price action was the widening of the spread between U.S. Government bonds and German bunds. This helped make the U.S. Dollar a more attractive investment. Furthermore, the benchmark U.S. 10-year Treasury yield jumped through 2 percent as investors reduced the chances of a July Fed rate cut from 120% to about 100%.

With investors still banking on a 25 basis point rate cut by the Fed, the focus now shifts to the European Central Bank. It is scheduled to make its interest rate decision on July 25, while the Federal Reserve holds its two-day meeting on July 30-31.


Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, but momentum has been trending lower since the formation of the closing price reversal top on June 25 at 1.1413.

A trade through 1.1181 will change the main trend to down. The next targets under this level are 1.1116 and 1.1107.

The main range is 1.1448 to 1.1107. Its retracement zone at 1.1278 to 1.1318 is resistance. Trading below this zone is also giving the EUR/USD a downside bias.

The short-term range is 1.1107 to 1.1413. Its retracement zone at 1.1260 to 1.1224 was tested on Friday. Trading on the weak side of this zone will indicate the selling is getting stronger.

The last retracement level support is the long-term Fibonacci level at 1.1185.

Daily Swing Chart Technical Forecast

Based on Friday’s price action, the direction of the EUR/USD on Monday is likely to be determined by trader reaction to the short-term Fibonacci level at 1.1224.

Bearish Scenario

A sustained move under 1.1224 will indicate the presence of sellers. This could trigger a break into 1.1185 and 1.1181. If the latter fails then the main trend will change to down. This could trigger an acceleration to the downside with 1.1116 to 1.1107 the next major target zone.


Bullish Scenario

A sustained move over 1.1224 will signal the presence of buyers. If this creates enough upside momentum then look for a potential rally into a pair of 50% levels at 1.1260 and 1.1278.

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