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James Hyerczyk
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EUR/USD

The Euro is trading lower at the mid-session on Friday as investors bet interest rates would stay lower for longer in Europe, a day after currency traders shrugged off a higher-than-expected U.S. consumer inflation report and a European Central Bank (ECB) policy decision that came in as expected.

At 16:53 GMT, the EUR/USD is trading 1.2099, down 0.0077 or -0.63%.

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A day after the ECB stuck to its dovish stance, ECB policymaker Klaas Knot said that flexible fiscal rules would be needed for years as monetary policy remains constrained.

Although U.S. consumer inflation came in above guesses on Thursday, investors seemed to agree with the Fed’s assertion that any rise in inflation would be temporary and that it is too soon to be discussing reducing its monetary stimulus.

However, Friday’s rally in the U.S. Dollar suggests there is a growing number of investors who believe the Fed will announce in August or September a strategy for reducing its massive bond-buying program, but don’t expect it to start cutting monthly purchases until early next year, a Reuters poll found.

Daily EUR/USD

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed when sellers took out the last main bottom at 1.2104. The next potential downside target is the May 12 main bottom at 1.2052. A trade through 1.2218 will change the main trend to up.

The short-term range is 1.1986 to 1.2266. The EUR/USD is trading on the weak side of its pivot at 1.2125, making it new resistance.

The next two major support levels are a pair of longer-term 50% levels at 1.2027 and 1.1985.

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Daily Swing Chart Technical Forecast

The direction of the EUR/USD into the close on Friday is likely to be determined by trader reaction to the 50% level at 1.2125.

Bearish Scenario

A sustained move under 1.2125 will indicate the presence of sellers. This could trigger a near-term break into the main bottom at 1.2052, followed by a 50% level at 1.2027.

Bullish Scenario

A sustained move over 1.2125 late in the session will signal the return of buyers. This could trigger a short-covering rally into a minor pivot at 1.2206. Since the main trend is down, sellers could come in on the first test of this level.

For a look at all of today’s economic events, check out our economic calendar.
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