The Euro is poised to post a fourth month of gains against the U.S. Dollar on Monday after last week’s U.S. Federal Reserve policy shift on inflation led to predictions that U.S. interest rates would remain near historically low levels for several years. The Euro is on track for a 1.3% monthly gain.
At 12:52 GMT, the EUR/USD is trading 1.1937, up 0.0032 or +0.27%.
EUR/USD investors are adjusting to a speech last Thursday in which Federal Reserve Chair Jerome Powell outlined an accommodative policy change which is believed could result in inflation moving slightly higher and interest rates staying lower for longer.
“Even if U.S. central bankers are likely to be pleased about the interpretation of their measures, it is not good news for the dollar”, Commerzbank analysts commented.
“If one expects the domestic purchasing power of the dollar to be eroded more quickly (as that is what inflation is) it is difficult to assume that it will maintain its purchasing power on the FX market in the long run,” they argued.
“That is why the EUR/USD is trading above 1.19, with the dollar index trading below 92.50”, they concluded.
With most of London’s traders off on a holiday, attention now turns to a handful of Federal Reserve officials due to speak through the week, beginning with Richard Clarida at 1300 GMT Monday, as they put more flesh on the bank’s new policy framework.
Euro Zone inflation data on Tuesday and U.S. payrolls on Friday will also be closely watched.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. A trade through 1.1966 will reaffirm the uptrend. The main trend will change to down on a move through 1.1754.
The short-term range is 1.1711 to 1.1966. Its retracement zone at 1.1839 to 1.1808 is new support.
Daily Swing Chart Technical Forecast
Strong upside momentum is currently guiding the EUR/USD higher on Monday. If this upside momentum continues then look for a test of the August 18 main top at 1.1966. Taking out this level will indicate the buying is getting stronger with the next target the May 14, 2018 top at 1.1998.
On the downside, although the EUR/USD is up only six days from its last swing bottom, there is always the possibility of an early closing price reversal top. This would make Friday’s close at 1.1905 the key level to watch today.
Holding above 1.1905 will indicate that buyers are propping up the Forex pair. However, a break under this level and especially a lower close for the session will indicate the selling is greater than the buying at current price levels. This could trigger a 2 to 3 day correction, but not necessarily a change in trend.