EUR/USD Struggling to Gain Traction Ahead of Fed Decisions

The Euro is trading lower on Monday, hovering just above a five-year low reached last week, while trading inside the previous session’s range. The price action indicates investor indecision and impending volatility. The catalyst behind the early move is position-squaring ahead of a busy week of central bank meetings including a likely Federal Reserve interest rate hike.

At 10:41 GMT, the EUR/USD is trading 1.0529, down 0.0018 or -0.17%. On Friday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $97.75, up $0.36 or +0.37%.

The single-currency also came under pressure after a survey showed that Euro Zone manufacturing output growth stalled last month as factories struggled to source raw materials, while demand took a knock from steep price increases.

Divergence in Central Bank Policies Favoring U.S. Dollar

Investors are expecting the Federal Reserve to hike rates by 50 basis points when it meets on May 3-4. The uncertainty is around how hawkish Fed Chair Jerome Powell will sound in comments following the decision.

Additionally, the markets are pricing in an aggressive run of rate hikes from the Fed as it tries to tame soaring inflation. That, together with an expected slower rate of European Central Bank tightening and worries about the impact of the war in Ukraine on the Euro Zone economy, has sent investors scrambling for dollars and left the Euro at five-year lows.

Over the near-term, we expect the EUR/USD to remain weak as the hawkish Federal Open Market Committee (FOMC) and expected economic weakness in the Euro Zone due to the war in Ukraine will continue to support the U.S. Dollar. In my opinion, traders are likely to continue to sell rallies.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.0472 will signal a resumption of the downtrend.

A move through 1.0936 will change the main trend to up. This is highly unlikely, but due to the prolonged move down in terms of price and time, the EUR/USD begins the week inside the window of time for a closing price reversal bottom.

Today’s session begins with the EUR/USD trapped inside a series of 5-year bottoms at 1.0569, 1.0524 and 1.0493.

The minor range is 1.0936 to 1.0472. Its retracement zone at 1.0704 to 1.0759 is the nearest resistance target.

Daily Swing Chart Technical Forecast

The direction of the EUR/USD into the close on Monday is likely to be determined by trader reaction to 1.0532.

Bearish Scenario

A sustained move under 1.0532 will indicate the presence of sellers. If this create enough downside momentum then look for a test of the minor bottom at 1.0472. Taking out this level could trigger an acceleration to the downside since the nearest support doesn’t come in until 1.0339.

Bullish Scenario

A sustained move over 1.0532 will signal the presence of counter-trend buyers. Taking out 1.0592 will indicate the buying is getting stronger. If this generates enough upside momentum then look for a potential near-term surge into the minor retracement zone at 1.0704 to 1.0759.