Strong Euro Rally Puts 1.1303 – 1.1345 on Radar

The Euro closed sharply higher against the U.S. Dollar on Monday as traders booked profits and began covering short positions ahead of Thursday’s European Central Bank (ECB) policy meeting. Investors are also looking to Friday’s U.S. Non-Farm Payrolls report for an indication of how aggressive the Fed can be on its tightening path.

On Monday, the EUR/USD settled at 1.1233, up 0.0086 or +0.77%. The Invesco CurrencyShares Euro Trust ETF (FXE) finished at $104.35, up $0.76 or +0.73%.

In economic news, the Omicron wave of COVID-19 infections slowed Euro Zone economic growth in the final quarter of 2021 compared to the previous three months although the impact was much stronger in Germany than in France or Italy.

The European Union’s statistics office estimated on Monday that gross domestic product in the 19 countries sharing the Euro expanded a quarterly 0.3% in October-December 2021, slowing sharply from 2.3% growth in the previous three months. The flash reading was as expected in a Reuters poll of economists.

Year-on-year growth was still a respectable 4.6%, roughly in line with economists’ expectations.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum shifted to the upside with the confirmation of Friday’s closing price reversal bottom. The move won’t change the trend to up, but it could trigger the start of a 2 to 3 day correction.

A move through 1.1122 will negate the chart pattern and signal a resumption of the downtrend. The main trend will change to up on a trade through 1.1483.

The minor range is 1.1483 to 1.1122. If the upside momentum continues then look for a near-term test of 1.1303 to 1.1345.

Short-Term Outlook

The direction of the EUR/USD early Tuesday is likely to be determined by trader reaction to 1.1248.

Bullish Scenario

A sustained move over 1.1248 will indicate the momentum is getting stronger. Although the move is being primarily driven by short-covering, it may create enough upside momentum to challenge 1.1303 to 1.1345 over the next 2 to 3 days. Since the main trend is down, sellers are likely to come in on a test of this area.

Bearish Scenario

The inability to overcome or sustain a rally over 1.1248 will indicate the presence of sellers. This could trigger a pullback into 1.1185.

Aggressive counter-trend buyers could come in on a test of 1.1185. They’ll be trying to form a potentially bullish secondary higher bottom. If this level fails, however, then look for another test of 1.1122.