The Euro is edging higher against the U.S. Dollar on Monday as the position-squaring continues following a jump in the chances of a Fed rate at the end of October last week, following the release of weaker-than-expected U.S. economic data.
I don’t think we’re seeing a shift in sentiment, I think we’re just seeing short-covering caused by traders making adjustments to a suddenly weaker U.S. Dollar.
On October 1, the Euro was trading at a 2 year low as the chances of a Fed cut sat at 20%. The probability of a rate cut now sits at about 80%. The Euro isn’t being underpinned because of a shift in sentiment. Why would investors suddenly turn bullish on a currency representing an economy weaker than the U.S.? The Euro is being supported because the interest rate differential between U.S. Government bonds and German Government bonds tightened.
Even as a technician, I have to understand the fundamentals driving the price action. Sentiment indicators are not very accurate anyway. They’re just based on price differences over time, not an actual investor sentiment survey. Ask an investor if they’re bullish the Euro over the Dollar. That’s real sentiment.
At 12:20 GMT, the EUR/USD is trading 1.0992, up 0.0013 or +0.12%.
Daily Technical Analysis
The main trend is down according to the daily swing chart. However, momentum has been trending higher since the October 1 closing price reversal bottom at 1.0879. A trade through this price will negate the chart pattern and signal a resumption of the downtrend. The main trend will change to up on a move through 1.1110.
The short-term range is 1.1110 to 1.0879. Its retracement zone at 1.0995 to 1.1022 is acting like resistance. Overtaking 1.1022 and sustaining the move will indicate the short-covering is getting stronger.
Daily Technical Forecast
Based on the early price action and the current price at 1.0992, the direction of the EUR/USD the rest of the session on Monday is likely to be determined by trader reaction to the short-term 50% level at 1.0995.
A sustained move over 1.0995 will indicate the short-covering is getting stronger. This could trigger a rally into a series of levels including a downtrending Gann angle at 1.1014, the short-term Fibonacci level at 1.1022 and another downtrending Gann angle at 1.1030. Crossing to the strong side of an uptrending Gann angle at 1.1039 will put the EUR/USD in a position to challenge the main top at 1.1110.
A sustained move under 1.0995 will signal the presence of sellers. This could trigger a break into an uptrending Gann angle at 1.0959. If this fails as support then look for the selling to extend into the next uptrending Gann angle at 1.0839.
This article was originally posted on FX Empire
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