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The Euro hovered near a two-year low against the U.S. Dollar on Friday on thin volume as traders prepared for a long holiday weekend. The single currency was pressured by more hawkish comments from Federal Reserve officials, which reinforced expectations for faster U.S. policy tightening. The common currency traded sharply lower the previous session, testing a level unseen since April 2020.
On Friday, the EUR/USD settled at 1.0816, down 0.0014 or -0.13%. The Invesco CurrencyShares Euro Trust ETF (FXE) finished at $100.33, down $0.57 or -0.56%.
Fed Official Sees Faster Monetary Tightening
New York Fed President John Williams said on Thursday that a half-point rate rise next month was “a very reasonable option,” in a further sign than even more cautious policymakers are on board with faster monetary tightening.
ECB Remains Dovish
By Contrast, European Central Bank President Christine Lagarde said around the same time as Williams was making his comments that there was no clear timeframe for when ECB rates would start to rise, adding that it could be weeks or even several months after the central bank winds down its stimulus scheme in the third quarter.
Central Bank Policy Divergence Favors US Dollar
The direction of the EUR/USD is bearish because of the divergences in monetary policy between the U.S. Federal Reserve and the European Central Bank.
“Williams spoke openly of the need to move rates more swiftly and above neutral,” Tim Riddell, a macro strategist at Wespac wrote in a client note. By contrast, the ECB “revealed a more dovish reaction function to the inflation news than the market had discounted,” he said.
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart. A trade through 1.0758 will signal a resumption of 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 1.0923 will change the minor trend to up. This will shift momentum to the upside.
The first minor range 1.0923 to 1.0758. Its pivot at 1.0841 is potential resistance. This is followed by pivots at 1.0846 and 1.0972.
Short-Term Outlook
The direction of the EUR/USD early Monday is likely to be determined by trader reaction to 1.0841.
Bearish Scenario
A sustained move under 1.0841 will indicate the presence of sellers. If this creates enough downside momentum, we could see a retest of 1.0758. This 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.