EUR/USD Forex Technical Analysis – Weaker on Thought ECB Can’t Compete with Fed Rate Hike Expectations

The Euro is under pressure against the U.S. Dollar on Friday amid speculation the European Central Bank (ECB) may still find it hard to match market pricing for Federal Reserve rate hikes.

Surprisingly softer consumer and producer inflation numbers on Wednesday and Thursday spiked the Euro higher against the U.S. Dollar as they cooled expectations of an aggressive rate hike by the Fed. However, after this initial thrust, sellers returned on the idea that the Fed will have to continue on a path of aggressive rate hikes.

At 12:19 GMT, the EUR/USD is trading 1.0288, down 0.0031 or -0.30%. On Thursday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $95.29, up $0.11 or +0.12%.

Fed Still Calling the Shots Despite Reports of Softer Inflation

Euro buyers were likely influenced by this week’s shifting in the odds of a 75 basis-point rate hike to a 50 basis-point in September. However, today’s price action suggests this may have just been a knee-jerk reaction to softer-than-expected declines in consumer and producer inflation in July.

What traders may have initially ignored is the fact that inflation remains at elevated levels and that the Fed has to remain aggressive over the short-run if it wants to drive inflation back to the mandated 2% level.

This idea was supported on Thursday by San Francisco Federal Reserve President Mary Daly, who joined a growing list of Fed officials calling for the central bank to continue on its aggressive tightening path.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 1.0368 will signal a resumption of the uptrend. A move through 1.0123 will change the main trend to down.

The intermediate range is 1.0774 to .9952. Its retracement zone at 1.0363 to 1.0460 is resistance. This zone stopped the buying on Wednesday at 1.0368.

The first downside target is a minor pivot at 1.0246. The short-term downside target is the retracement zone at 1.0160 to 1.0111.

Daily Swing Chart Technical Forecast

Trader reaction to the 50% level at 1.0284 is likely to determine the direction of the EUR/USD on Friday.

Bullish Scenario

A sustained move over 1.0284 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into its retracement zone at 1.0363 to 1.0368.

Bearish Scenario

A sustained move under 1.0284 will signal the presence of sellers. This could trigger a quick break into the minor pivot at 1.0246. This price is a potential trigger point for an acceleration to the downside with 1.0160 – 1.0111 the next likely target area.