EUR/USD Mid-Session Technical Analysis for February 21, 2017

The EUR/USD is down sharply at the mid-session. Investors are reacting to the political uncertainty linked to the elections in France and worries over a Fed rate hike in March. Strong purchasing manager surveys out of France and Germany were not enough to stop the spike lower by the Euro.

In France, investors are concerned about the growing popularity of far-right candidate Marine Le Pen. One poll on Monday, while an outlier, showed her closing the gap between centrist favorite Macron to 16 points. Macron represents the status quo and Le Pen represents change. She is campaigning on the promise of France to leave the Euro Zone and to hold a referendum to leave the European Union.

Tuesday’s U.S. data includes the Flash Manufacturing PMI report, which is expected to come in at 54.7, down slightly from the previous 55.0 and Flash Services PMI, which is expected to reach 55.8, up from 55.6.

Last week, Fed Chair Janet Yellen signaled that the U.S. economy was ready for a rate hike. On Tuesday, we’ll hear from the hawkish Patrick Harker. Fed Board Governor Jerome Powell will speak on Wednesday, when the Fed will release the minutes of the last monetary policy meeting. Cleveland Fed President Loretta Mester said on Monday she would be comfortable raising rates at this point if the economy kept performing the way it did.

Technical Analysis

The main trend is down according to the daily swing chart. The current downside momentum has put the EUR/USD in a position to challenge last week’s closing price reversal bottom at 1.0521. Taking this price out will negate the chart pattern and signal a resumption of the downtrend.

The main range is 1.0339 to 1.0828. Its retracement zone at 1.0583 to 1.0526 is currently being tested. This zone is important to the longer-term structure of the Euro. Taking it out would solidify the bearish bias.

Forecast

Based on the current price at 1.0534, the direction of the EUR/USD is likely to be determined by trader reaction to the Fibonacci level at 1.0526.

Holding above 1.0526 will indicate that buyers are coming in to defend the reversal bottom at 1.0521.  This may generate enough upside momentum to challenge the 50% levels at 1.0583 and 1.0606.

A sustained move through 1.0526 will indicate the presence of sellers. This is followed by the reversal bottom at 1.0521 and the uptrending angle at 1.0514.

If the angle at 1.0514 is taken out with conviction then look for a possible acceleration to the downside with the next target angle coming in at 1.0427. This is the last major support angle before the 1.0339 main bottom.