James Hyerczyk
Based on Friday’s close at 1.1406, the direction of the EUR/USD on Monday is likely to be determined by trader reaction to the short-term 50% level at 1.1429.
The Euro rose sharply on Friday just one day after a dovish European Central Bank President Mario Draghi warned that weakness in the Euro Zone’s economy could be more pronounced than thought. Draghi’s remarks also signaled a delay in the central bank’s first interest rate hike in years. The rally suggests that Draghi’s dovish comments were already priced in.
On Friday, the EUR/USD settled at 1.1406, up 0.0099 or +0.87%.
The catalyst behind the sharp rise on Friday was a report that said Federal Reserve officials are nearing a decision on when to end its balance sheet reduction. This is an important consideration for investors because it will allow them to assess the strength of the Fed’s monetary policy tightening. Ending its program to reduce its balance sheet combined with the decision to leave interest rates unchanged at next week’s meeting on Wednesday, January 30 sends a dovish message to traders, making the U.S. Dollar a less-attractive investment.
Daily EUR/USD
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart, however, momentum shifted to the upside with the formation of the weekly closing price reversal bottom. The main trend will change to up on a trade through 1.1570. A move through 1.1289 will negate the weekly closing price reversal bottom and signal a resumption of the downtrend.
The minor trend is up. It turned up on Friday when buyers took out the previous minor top at 1.1395. It was reaffirmed when they rallied through 1.1413 late in the session. The change in trend also shifted momentum to the upside.
The short-term range is 1.1570 to 1.1289. Its retracement zone at 1.1429 to 1.1463 is the initial upside target. Since the main trend is down, sellers could come in to defend this area.
Overcoming 1.1463 with conviction could trigger a further rally into the major retracement zone at 1.1516 to 1.1587.
Daily Swing Chart Technical Forecast
Based on Friday’s close at 1.1406, the direction of the EUR/USD on Monday is likely to be determined by trader reaction to the short-term 50% level at 1.1429.
Bullish Scenario
Overtaking and sustaining a rally over 1.1429 will indicate the presence of buyers. This could extend the rally into 1.1463. This level is resistance, but overcoming it could fuel an acceleration into the next minor top at 1.1490, followed by the main 50% level at 1.1516.
Bearish Scenario
The inability to overcome and sustain a rally over 1.1429 will indicate the presence of sellers. This could lead to a retracement of the rally from 1.1289 which makes 1.1353 the first potential downside target. This is followed by the new minor bottom at 1.1289 and the main bottom at 1.1270 – FX-Empire