EUR/USD in Position to Challenge 1.1386 to 1.1397

The Euro is trading higher late in the session on Tuesday after U.S. Treasury yields dipped slightly as Fed Chair Jerome Powell detailed his plan to fight inflation if confirmed for a second term leading the central bank.

The price action suggests that the Euro rallied because Powell didn’t reveal anything new about the timing of the Fed’s first rate hike. Powell testified before the Senate Committee on Banking, Housing and Urban Affairs on Tuesday, saying that that the Fed intended to normalize monetary policy in 2022.

At 19:04 GMT, the EUR/USD is trading 1.1370, up 0.0040 or +0.35%. The Invesco CurrencyShares Euro Trust ETF (FXE) is at $105.59, up $0.29 or +0.28%.

The markets now think there’s a 76% chance the Fed hikes interest rates at the March meeting of the Federal Open Market Committee, up from about 15% in mid-October, according to the CME Group’s FedWatch site.

If Powell had confirmed the March rate hike in his commentary, the U.S. Dollar probably would have rallied against the Euro.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trending higher. A trade through 1.1386 will change the main trend to up. A move through 1.1272 will signal a resumption of the downtrend.

The minor trend is up. It changed to up on Tuesday when buyers took out 1.1365. This shifted momentum to the upside. The new minor bottom is 1.1285.

The minor range is 1.1386 to 1.1272. The EUR/USD is trading on the strong side of its retracement zone at 1.1343 to 1.1329, making it new support.

The nearest resistance is a long-term 50% level at 1.1397. Taking out this level could trigger an acceleration to the upside with 1.1439 the next target.

The major support is the long-term Fibonacci level at 1.1291, followed by the minor Fibonacci level at 1.1262.

Short-Term Outlook

The direction of the EUR/USD over the short-term will be determined by trader reaction to 1.1343 to 1.1329.

Bullish Scenario

A sustained move over 1.1343 will indicate the presence of buyers. Taking out the minor top at 1.1365 indicates the buying is getting stronger. If this creates enough upside momentum then look for a surge into the main top at 1.1386, followed by the main 50% level at 1.1397.

Bearish Scenario

A move under 1.1343 will be the first sign of weakness. A sustained move under 1.1329 will indicate the selling pressure is getting stronger. This could trigger an acceleration to the downside with 1.1291 – 1.1285 the next downside target.