EUR/USD Forex Technical Analysis – Hedge Funds have Loaded Up on Euros Ahead of ECB Rate Hikes

The Euro is inching higher on Monday as risk sentiment firmed overnight after tumbling the previous session on fears of more aggressive Fed rate hikes. The catalyst behind that move was stronger-than-expected U.S. labor market data that suggested the Fed may have to tighten policy faster in order to slow growth and gain control of inflation.

At 11:17 GMT, the EUR/USD is trading 1.0730, up 0.0011 or +0.10%. On Friday, the Invesco CurrencyShares ETF (FXE) settled at $99.23, down $0.24 or -0.24%.

Traders Looking for More Clarity from European Central Bank

The markets, which have already priced in several ECB rate increases and the end of bond-buying stimulus, after President Christine Lagarde signaled the move, want more clarity on what comes after.

The current price action suggests an upside bias is building. According to some analysts, the Euro has room to rally as forecasts about ECB policy moves are prone to hawkish upgrades.

Money markets are pricing in 130 bps of ECB rate increases by year-end, including a 30% chance of an additional 25 bps move beyond the fully prices 25 bps in July.

Traders want more clarity on what comes next, and whether policy tightening might be accelerated to get ahead of soaring prices.

While the analysts debate the issue, professionals have already committed to the long side. According to government data, hedge funds are already loaded up on Euros. US. futures market data shows speculators are holding their most significant net-long Euro position in 12 weeks.


Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 1.0787 will signal a resumption of the uptrend. A move through 1.0627 will change the main trend to down.

The main range is 1.1185 to 1.0354. Its retracement zone at 1.0770 to 1.0868 is resistance. It stopped the rally at 1.0787 on May 30.

The minor range is 1.0787 to 1.0627. The EUR/USD is currently trading on the strong side of its pivot at 1.0707, making it support.

The short-term range is 1.0354 to 1.0787. If the main trend changes to down then its retracement zone at 1.0571 to 1.0519 will become the next key target area.

Daily Swing Chart Technical Forecast

Trader reaction to 1.0707 is likely to determine the direction of the EUR/USD into the close on Monday.

Bullish Scenario

A sustained move over 1.0707 will indicate the presence of buyers. The first upside target is the main 50% level at 1.0770, followed by the main top at 1.0787.

Taking out 1.0787 will reaffirm the uptrend. If this move creates enough upside momentum the look for a surge into the main Fibonacci level at 1.0868.

Bearish Scenario

A sustained move under 1.0707 will signal the presence of sellers. This could trigger a sharp break into the main bottom at 1.0627. If this level is taken out then look for the selling to extend into 1.0571 to 1.0519.

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Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.