EUR/USD Forex Technical Analysis – Recovers from Early Setback Despite Softer ZEW Economic Sentiment

The Euro closed higher against the U.S. Dollar on Tuesday, recovering from an early setback that was fueled by a report showing a slight dip in German investor sentiment in August. The results of the data revealed concerns the rising cost of living will hit private consumption, perhaps tipping Europe’s largest economy into a recession.

On Tuesday, the EUR/USD settled at 1.0171, up 0.0011 or +0.11%. The Invesco CurrencyShares Euro Trust ETF (FXE) finished at $93.95, up $0.06 or +0.06%.

The ZEW economic research institute said on Tuesday its economic sentiment index fell to -55.3 points from -53.8 in July. A Reuters poll had pointed to an August reading of -53.8.

“The still high inflation rates and the expected additional costs for heating and energy lead to a decrease in profit expectations for the private consumption sector,” ZEW researcher Michael Schroeder said in a statement.

Looking ahead to Wednesday, U.S. retail sales are expected to offer new insight into the state of the consumer. It is expected to show that sales rose by 0.1% in July compared with June. A stronger-than-expected result will give the Fed more leeway to hike rates, which boost the U.S. Dollar and pressure the Euro.

The FOMC will also release the minutes of its July meeting at 18:00 GMT. Investors will be looking for clues as to how large a rate hike is likely in September.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 1.0123 will change the main trend to down. A move through 1.0097 will reaffirm the downtrend. Taking out the main top at 1.0368 will reaffirm the uptrend.

The short-term range is .9952 to 1.0368. Its retracement zone at 1.0160 to 1.0111 is potential support.

On the upside, the nearest resistance is a 50% level at 1.0284. The best resistance is a retracement zone at 1.0363 to 1.0460. This area stopped the rally on August 10.

Daily Swing Chart Technical Forecast

Trader reaction to the short-term 50% level at 1.0160 is likely to determine the direction of the EUR/USD early Wednesday.

Bullish Scenario

A sustained move over 1.0160 will indicate the presence of buyers. This could trigger a surge into a minor pivot at 1.0268, followed by a 50% level at 1.0284.

Bearish Scenario

A sustained move under 1.0160 will signal the presence of sellers. This could lead to a quick test of 1.0111, followed by the main bottom at 1.0097. This is a potential trigger point for an acceleration to the downside.