EUR/USD Short-Covering Rally Could Strengthen Over 1.0871

The Euro is edging higher at the mid-session after being underpinned as it neared a one-year low. A dip in Treasury yields for a second straight session is helping to generate the boost in prices, but some traders are worried the economic impact from the war in Ukraine will limit gains.

At 14:52 GMT, the EUR/USD is at 1.0842, up 0.0016 or +0.15%. The Invesco CurrencyShares Euro Trust ETF (FXE) is at $100.23, down $0.12 or -0.12%

U.S. Treasury yields continued to slide as investors reacted to yesterday’s consumer inflation report (CPI). Though monthly underlying inflation pressures showed some signs of moderation in Tuesday’s data, traders ramped up bets that the U.S. central bank will accelerate its monetary tightening measures this year.

In economic news, U.S. producer prices (PPI) increased 11.2% from a year ago, the most in a data series going back to November 2010. On a monthly basis, the gauge increased 1.4%, above the 1.1% Dow Jones estimate. However, traders shrugged off the development.

In Europe, German lawmakers called for an embargo on Russian oil as soon as possible, which if implemented would further weigh on the region’s growth prospects.


Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through the March 7, 2022 main bottom at 1.0806 will reaffirm the downtrend.

A move through 1.1185 will change the main trend to up. This is highly unlikely, but due to the prolonged move down in terms of price and time, the EUR/USD is ripe for a closing price reversal bottom.

The minor trend is also down. A trade through 1.0933 will change the minor trend to up. This will shift momentum to the upside.

The minor range is 1.0933 to 1.0809. Its resistance is the pivot at 1.0871. The second minor range is 1.1185 to 1.0809. If the minor trend changes to up then its pivot at 1.0997 will become the next target.

Daily Swing Chart Technical Forecast

The direction of the EUR/USD into the close on Wednesday will be determined by trader reaction to 1.0826.

Bullish Scenario

A sustained move over 1.0826 will indicate the presence of buyers. This could trigger a surge into 1.0871.

Sellers could come in on the first test of 1.0871, but overcoming this level could trigger an acceleration into the minor top at 1.0933.

Bearish Scenario

A sustained move under 1.0826 will signal the presence of sellers. The first downside target is the main bottom a 1.10806. This price is a potential trigger point for an acceleration to the downside with the March 23, 2020 main bottom at 1.0636 the next major target.

Side Notes

A close over 1.0826 will form a potentially bullish closing price reversal bottom. If confirmed, this could trigger the start of a 2 to 3 day counter-trend retracement.

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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.