The Euro is up sharply against the U.S. Dollar after Euro Zone bond yields jumped on Tuesday, with two-year German borrowing costs hitting over two-week highs, after a source-based report that the European Central Bank (ECB) would discuss whether to raise rates by 25 or 50 basis points on Thursday, Reuters reported.
The news caught traders by surprise, fueling an intraday short-covering rally just two session before the ECB meeting on Thursday. Prior to today’s revelation, the ECB had flagged that it would raise rates by 25 bps at its July meeting and perhaps raise rates more aggressively in September.
Money markets are now pricing in roughly a 60% chance of a 50 bps rate hike this week, up from around 35% on Monday.
Short-Term Technical Analysis
The main trend is down according to the daily swing chart. However, momentum is trending higher. A trade through 1.0615 will change the main trend to up. A move through .9952 will signal a resumption of the downtrend.
The minor trend is up. It changed to up on Monday when buyers took out 1.0122. This move shifted momentum to the upside.
The short-term range is 1.0615 to .9952. Its 50% level at 1.0284 is potential resistance.
The intermediate range is 1.0774 to .9952. Its retracement zone at 1.0363 to 1.0460 is an even stronger resistance area.
The minor range is .9952 to 1.0269. Its retracement zone at 1.0111 to 1.0073 is the nearest support.
Short-Term Technical Forecast
Trader reaction to the short-term pivot at 1.0284 is likely to determine the direction of the EUR/USD into the close on Tuesday.
A sustained move under 1.0284 will indicate the presence of sellers. If this move creates enough downside momentum, we could see a short-term pullback into the retracement zone at 1.0111 to 1.0073.
A sustained move over 1.0284 will signal the presence of buyers. This could trigger an acceleration into the intermediate retracement zone at 1.0363 to 1.0460. Since the main trend is down, sellers could come in on a test of this area.