EUR/USD Forex Technical Analysis – Vulnerable to Closing Price Reversal Top

The Euro is testing its highest level since April 26 on Tuesday as traders cut short bets on the common currency after European Central Bank President Christine Lagarde said interest rates in the Euro Zone will likely be in positive territory by the end of the third quarter.

At 12:00 GMT, the EUR/USD is at 1.0717, up 0.0025 or +0.23%. On Monday, the Invesco CurrencyShares Euro Trust settled at $98.95, up $1.20 or +1.23%.

In a speech on Monday, Lagarde indicated eight-years of negative Euro Zone interest rates will most likely be over by the end of summer. Traders interpreted this to mean that there would be two rate hikes over the course of the next four months.

Another positive for the EUR/USD on Tuesday was a report showing resilient business activity for the region. Helping to support the argument for tightening policy was robust European PMI data.

While the news was strong enough to encourage a number of bearish traders to cover their short Euro positions, some remained skeptical about the strength of the single currency due to the on-going war in Ukraine. Furthermore, they reserved judgement on its direction while they waited for the results of the minutes from the Federal Reserve’s May policy meeting on Wednesday.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 1.3054 will change the main trend to down. This is highly unlikely, however, the EUR/USD is up seven sessions from its last main bottom, putting in a position to form a closing price reversal top.

The short-term range is 1.0936 to 1.0354. The EUR/USD is currently testing its retracement zone at 1.0645 to 1.0714.

The main range is 1.1185 to 1.0354. Its retracement zone at 1.0770 to 1.0868 is the next upside target.

The minor range is 1.0354 to 1.0736. Its 50% level at 1.0545 is trailing support.

Daily Swing Chart Technical Forecast

Trader reaction to 1.0714 will likely determine the direction of the EUR/USD on Tuesday.

Bullish Scenario

A sustained move over 1.0714 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into 1.0770. Sellers could return on a test of this level, but if it fails then look for the rally to possibly extend into 1.0868.

Bearish Scenario

A sustained move under 1.0714 will signal the presence of sellers. Crossing to the weak side of 1.0691 will put the EUR/USD lower for the session. This could trigger a break into 1.0645. This level is a potential trigger point for an acceleration into the trailing pivot at 1.0545.

Side Notes

A close under 1.0691 will form a potentially bearish closing price reversal top. If confirmed, this could lead to the start of a 2 to 3 day correction.