EUR/USD Forex Technical Analysis – Plenty of Room to Rally Over 1.2200 but Low Volume Capping Gains

The Euro is trading flat against the U.S. Dollar on low volume and volatility early Monday with many of the major banks and institutions on the sidelines due to the extended U.S. Memorial Day holiday. There has been no follow-through to the upside following the previous session’s strong rally.

The single-currency rose sharply on Friday even after a key measure of U.S. inflation showed stronger price gains than expected, keeping alive expectations of an eventual tapering in the Federal Reserve’s asset buying.

Traders said a drop in U.S. debt yields in Friday’s shortened session before the long weekend was sparked by aggressive month-end buying of Treasurys.

At 08:55 GMT, the EUR/USD is trading 1.2193, up 0.0003 or +0.03%.

Economic news on Friday showed U.S. consumer prices surged in April, with a measure of underlying inflation blowing past the Federal Reserve’s 2% target and posting its largest annual gain since 1992, due to a recovery from the pandemic and various supply disruptions.

The core personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred gauge of inflation, rose 3.1% from a year ago, a smidge above market expectations of a 2.9% rise.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 1.2266 will signal a resumption of the uptrend. A move through 1.2052 will change the main trend to down.

The minor trend is also up. A trade through 1.2205 will make 1.2133 a new higher minor bottom. A trade through this level will then turn the minor trend to down, and also shift momentum to the downside.

The first minor range is 1.2266 to 1.2133. Its 50% level at 1.2200 is resistance. The EUR/USD is currently testing this level.

The first short-term range is 1.2052 to 1.2266. Its 50% level at 1.2159 is potential support.

The second short-term range is 1.1986 to 1.2266. Its 50% level at 1.2126 is another potential support area.

Friday’s low at 1.2133 fell in between 1.2159 to 1.2126.

The main range is 1.2349 to 1.1704. Its 50% level at 1.2027 is the key support. It is controlling the near-term direction of the EUR/USD.

Daily Swing Chart Technical Forecast

The direction of the EUR/USD on Monday is likely to be determined by trader reaction to the minor pivot at 1.2200.

Bullish Scenario

A sustained move over 1.2200 will indicate the presence of buyers. If this move is able to generate enough upside momentum then look for the rally to possibly extend into the main top at 1.2266 over the short-term when volume levels return to normal.

Bearish Scenario

A sustained move under 1.2200 will signal the presence of sellers. This could trigger a labored break with downside targets coming in at 1.2159, 1.2133 and 1.2126. The latter is a potential trigger point for an acceleration to the downside with 1.2052 and 1.2027 the next two downside targets.

For a look at all of today’s economic events, check out our economic calendar.