The Euro is trading higher against the U.S. Dollar on Friday, following through to the upside following yesterday’s dramatic and potentially bullish closing price reversal bottom. The Euro is rallying in reaction to higher German government bond yields amid reports that investors feel the ECB is done stimulating the ailing Euro Zone economy.
At 11:48 GMT, the EUR/USD is trading 1.1104, up 0.0041 or +0.37%.
On Thursday, the European Central Bank (ECB) cut its deposit interest rate by 10 basis points to a record low of minus 0.5% and said it would restart bond purchased at a rate of 20 billion Euros a month from November 1 for an indefinite time.
The EUR/USD broke sharply after the ECB’s announcement, but then rebounded after a report from Bloomberg said ECB President Mario Draghi faced opposition from several key ECB members to his decision to implement quantitative easing.
What message is the ECB sending to investors? Are they saying they are out of bullets and can’t fight the Euro Zone’s economic slowdown with conventional monetary policy weapons anymore? Are they saying that the Euro Zone economy can only be saved by a combination of both monetary and fiscal stimulus? The price action seems to be indicating the ECB took its best shot and traders think they underwhelmed after promising massive stimulus.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. The main trend changed to up earlier today when buyers took out the previous main top at 1.1085. The rally also confirmed yesterday’s potentially bullish closing price reversal bottom.
The first main range is 1.1286 to 1.0926. Its retracement zone at 1.1106 to 1.1148 is the first upside target.
The second main range is 1.1413 to 1.0926. Its retracement zone at 1.1170 to 1.1227 is the next key upside target.
The new short term range is 1.0927 to 1.1110. Its retracement zone comes in at 1.1019 to 1.0997. Remember that the first rally following a prolonged move down in terms of price and time is usually short-covering. The next move after that is a retracement of the first leg up. A pullback into that zone is usually where the real buyers come in. Right now we are witnessing an impressive short-covering rally.
Daily Swing Chart Technical Forecast
Based on the early price action and the current price at 1.1104, the direction of the EUR/USD the rest of the session is likely to be determined by trader reaction to the 50% level at 1.1106.
A sustained move over 1.1106 will indicate the presence of buyers. If this move creates enough upside momentum then look for the rally to possibly extend into the Fibonacci level at 1.1148.
Additional targets are a 50% level at 1.1170 and a long-term Fibonacci level at 1.1185.
A sustained move under 1.1106 will signal the presence of sellers. The first downside target is today’s intraday low at 1.1055. If this fails then look for a possible break into 1.1019 to 1.0997.
Look for buyers on a test of 1.1019 to 1.0997.
This article was originally posted on FX Empire
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