Euro Trading on Weak Side of Fibonacci Level at 1.1300

The Euro tested its lowest level since December 22 earlier in the session as the U.S. Dollar edged higher on safe-haven buying and the prospect of higher U.S. interest rates.

The financial markets until recently had mostly shrugged off the massing of Russian troops on Ukraine’s borders, but tensions have ratcheted up lately. NATO said it was putting forces on standby and reinforcing Eastern Europe with more ships and fighter jets, in what Russia denounced as an escalation of tensions.

At 12:59 GMT, the EUR/USD is trading 1.1267, down 0.0058 or -0.52%. On Tuesday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $105.18, down $0.23 or -0.22%.

Traders are also expecting to hear some hawkish news from the U.S. Federal Reserve on Wednesday after it completes its two-day meeting which begins later today.

The Fed is expected to signal the start of interest rate hikes in March, while potentially indicating how fast it will shrink its holdings of Treasuries and mortgage debt that have swollen its balance sheet past $8 trillion.

Ahead of the Fed announcements, traders are pricing in about four rate hikes this year. However, there is some chatter that the central bank may go as high as five or six to combat seemingly runaway inflation.

The price action clearly indicates the markets are pricing more of a risk premium into the Euro.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed earlier today when sellers took out the previous main bottom at 1.1272.

A trade through 1.1483 will change the main trend to up. This is not likely, but the prolonged move down in terms of price and time have put the EUR/USD inside the window of time for a closing price reversal bottom.

The main range is 1.1186 to 1.1483. The Euro is currently trading on the weak side of its retracement zone at 1.1300 to 1.1335, making it new resistance.

Daily Swing Chart Technical Forecast

The direction of the EUR/USD on Tuesday will likely be determined by trader reaction to 1.1300.

Bearish Scenario

A sustained move under 1.1300 will indicate the presence of sellers. The selling is likely to extend to the downside now that the main bottom at 1.1272 has been broken. This could trigger an acceleration into a pair of main bottoms at 1.1235 and 1.1222.

The major downside targets are the November 24 bottom at 1.1186 and the June 19, 2020 main bottom at 1.1168.

Bullish Scenario

Recovering the Fibonacci level at 1.1300 will signal the return of buyers. This could trigger an intraday short-covering rally into the 50% level at 1.1335.