EUR/USD Traders Eyeing 1.1098 – 1.1151 Retracement Zone

The Euro is trading sharply higher on Wednesday, supported ahead of this week’s European Central Bank (ECB) meeting by reports that European Union countries were discussing joint bond issuance to finance energy and defense spending.

At 14:15 GMT, the EUR/USD is trading 1.1031, up 0.0128 or +1.18%. On Tuesday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $101.22, up $0.37 or +0.37%.

The ECB meets on Thursday but amid the specter of stagflation, money markets expect policymakers to delay rate hikes until late in the year.

A steep drop in gold and crude oil is also helping to boost the Euro as traders take profits following a sharp run-up in commodity prices, and move some of the money back into the riskier Euro.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.0806 will signal a resumption of the downtrend. The main trend will change to up on a move through 1.1389.

The first potential upside target and resistance is a minor pivot at 1.1098. The second 50% target and resistance is 1.1151.

On the downside, the minor support level is 1.0928.

Daily Swing Chart Technical Forecast

Although Wednesday’s rally is impressive, it doesn’t represent a change in the minor trend nor the main trend. It’s only a short-covering rally.

Following a prolonged move down in terms of price and time, the first rally from the low is fueled by short-covering. After this move is complete, there is a near-term set-back. This move will determine whether the market will move higher, or lower. We’re not even at that point yet.

If the short-covering rally continues then look for a move into the pair of 50% levels at 1.1098 to 1.1151. Since the main trend is down, sellers are likely to come in. They will be trying to form a potentially bearish secondary lower top.

It’s a very common pattern and so far, it’s nothing to get excited about. The size of today’s rally is only indicative of the fact that the resistance is far from the bottom. It doesn’t mean the short-covering is strong. Short-sellers are just waiting for market to reach resistance.