EUR/USD Mid-Session Technical Analysis for March 21, 2018

The EUR/USD is trading higher shortly after the U.S. opening as investors prepare for the U.S. Federal Reserve’s monetary policy announcements at 1800 GMT.

According to the CME Group’s FedWatch tool, market expectations for a March rate hike of 25-basis points from 1.50 to 1.75 are 94.4 percent as of Tuesday afternoon.

Given this certainty, investors are most likely to react to any hints offered by the Fed about whether the central bank will stay on track for three rate hikes in 2018 or if it expects to be more aggressive by forecasting four rate hikes. The Fed’s dot plot projections will reveal if the central bank believes an overheating economy needs to be cooled off by more aggressive monetary policy.

The EUR/USD is likely to weaken further if the Fed is hawkish in its tone. A dovish Fed could trigger a short-covering rally. Traders should also note that the European Central Bank may be discussing further ways to adjust stimulus which could result in a quicker-than-expected rate hike.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. Yesterday’s sell-off negated Monday’s closing price reversal bottom, signaling a resumption of the down trend. Today’s lack of follow-through to the downside has fueled the intraday short-covering rally, suggesting investor indecision and impending volatility.

A move through 1.2239 will indicate the selling is getting stronger, but given the recent price action, traders still have to be on their toes for a sudden reversal. In other words, be careful selling weakness especially ahead of the Fed announcements.

The short-term range is 1.2153 to 1.2446. Its retracement zone at 1.2300 to 1.2265 is currently being tested. Trader reaction to this zone should determine the short-term direction of the market.

The main range is 1.2555 to 1.2153. If there is a rally then its retracement zone at 1.2354 to 1.2401 will become the primary upside target.

Daily Swing Chart Technical Forecast

Given the current price and earlier price action, the direction of the EUR/USD the rest of the session is likely to be determined by trader reaction to 1.2265.

A sustained move over 1.2265 will indicate the presence of buyers. This could drive the Forex pair into 1.2300. Overtaking this level could trigger an acceleration to the upside with 1.2354 the minimum target.

A sustained move under 1.2265 will signal the presence of sellers. The trigger point for a steep sell-off is 1.2239. The daily chart indicates there is room to tumble to 1.2166.