EUR/USD Forex Technical Analysis – Rising Fed Rate Hike Expectations Could Drive Euro Below Parity

The Euro closed lower against the U.S. Dollar on Friday after stronger-than-expected U.S. jobs data fueled expectations for a 75 basis point rate hike at the Federal Reserve’s September 21 meeting.

The U.S. Non-Farm Payrolls increased by 528,000 jobs last month, the Labor Department said in its employment report on Friday. The figure surpassed expectations of 258,000. Data for June was revised higher to show 398,000 jobs created instead of the previously reported 372,000.

At the same time, wage growth rose with average earnings climbing 0.5% for the month and 5.2% over last year. The unemployment rate fell to a pre-pandemic low of 3.5%. The stronger than anticipated report showed that the U.S. is likely not in a recession.

On Friday, the EUR/USD settled at 1.0179, down 0.0048 or -0.47%. The Invesco CurrencyShares Euro Trust ETF (FXE) finished at $94.02, down $0.65 or -0.69%.

The EUR/USD could weaken next week if traders continue to bet the U.S. Federal Reserve rate hikes will outpace those from the European Central Bank (ECB).

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending lower since August 2, following the confirmation of the closing price reversal top.

A trade through 1.0294 will reaffirm the uptrend. A trade through 1.0097 will change the main trend to down.

The minor trend is up. A trade through 1.0123 will change the minor trend to down. This will confirm the shift in momentum.

The intermediate range is 1.0615 to .9952. Its 50% level at 1.0284 is resistance. This is followed by additional retracement zone resistance at 1.0363 to 1.0460.

The minor range is 1.0097 to 1.0294. Its 50% level or pivot comes in at 1.0196.

The short-term range is .9952 to 1.0294. Its retracement zone at 1.0123 to 1.0083 is the next downside target.

Short-Term Outlook

Trader reaction to the pivot at 1.0196 is likely to determine the direction of the EUR/USD early Monday.

Bearish Scenario

A sustained move under 1.0196 will indicate the presence of sellers. If this creates enough downside momentum then look for a move into 1.0123 to 1.0083.

Since the main trend is up, buyers could come in on the first test of 1.0123 to 1.0083. Taking out 1.0083, however, could trigger an acceleration to the downside.

Bullish Scenario

A sustained move over 1.0196 will indicate the presence of buyers. If this generates enough upside momentum then look for the rally to possibly extend into the resistance cluster at 1.0284 – 1.0294.