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Tuesday, December 06, 2022

EUR/USD: Confirmation of reversal bottom shifted momentum

The euro is trading higher early Thursday, confirming yesterday’s potentially bullish daily closing price reversal bottom. The chart pattern does not change the trend, but it often indicates that buying is more than selling at current price levels.

This particular move could have been prompted by aggressive buyers defending March’s low at 1.0806 or a lack of sellers as the single-currency moved into the region on Wednesday.

At 04:50 GMT, EUR/USD is trading up 1.0906, 0.0014 or +0.13%. On Wednesday, the Invesco CurrencyShares Euro Trust ETF (FXE) closed at $100.86, up $0.51 or +0.51%.

Setting the Treasury Yield Reversal Tone

Short-covering in the euro is being fueled by a weaker US dollar, which posted a potential bearish closing price reversal against a basket of major currencies in the previous session. The catalyst behind that move was a drop in US Treasury yields.

The benchmark 10-year Treasury yield stood at 2.712% at the time of Tuesday’s close. It rose sharply earlier this month – driven by expectations of a more aggressive Federal Reserve’s handling of inflation – and hit a high of 2.836% ahead of US inflation data on Tuesday.

However, while high, US inflation figures were not quite as feared by some, which observers said caused yields to stall.

ECB meeting on-tap

Traders await a meeting of the European Central Bank (ECB) later in the day. Policy-makers may repeat past couplet messages, or adopt a more rigid tone as their global peers. A change in sentiment towards Hawkish could lead to a move higher in EUR/USD price.

Daily EUR/USD

daily swing chart technical analysis

The main trend is down as per the daily swing chart, however, the momentum is trending higher.

The momentum turned higher today when buyers pulled out yesterday’s high at 1.0894. This confirmed Wednesday’s closing price reversal bottom.

A trade through 1.1185 would turn the main trend upward. A move closing price reversal below 1.0809 will negate the downside and signal a resumption of the downtrend.

Minor range is also down. A trade through 1.0933 would turn the minor trend upward. This will confirm the change in speed.

The marginal range is 1.0933 to 1.0809. It has pivot support at the 50% level or 1.0871.

The short term range is 1.1185 to 1.0809. If the minor trend turns upward then look for a rally possibly extending its 50% level to 1.0997.

Daily Swing Chart Technical Forecast

The direction of EUR/USD at the beginning of Thursday will be determined by trader reaction at 1.0871.

Bullish outlook

A sustained move above 1.0871 would indicate the presence of buyers. If it produces enough upside momentum then look for a test of the minor top at 1.0933.

Exiting 1.0933 indicates that buying is consolidating with the next target pivoting at 1.0997. This is a potential trigger point for the upward acceleration.

recession outlook

A sustained move below 1.0871 would indicate the presence of sellers. If this generates enough downside momentum then look for selling possibly to extend to 1.0806 on the 7th March main floor. This is a potential trigger point for a downward acceleration with the main bottom at 1.0636 on March 23, 2020, the next major target.

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