EUR/USD Closes Higher for First Time in Six Sessions Amid Dollar Slide

The Euro is up late on Friday as the U.S. Dollar slipped on profit-taking and position-squaring ahead of next week’s U.S. Federal Reserve monetary policy meeting on May 3-4. The Fed is widely expected to raise its benchmark interest rate 50-basis points, a move that has been largely priced in.

At 20:02 GMT, the EUR/USD is trading 1.0549, up 0.0049 or +0.46%. The Invesco CurrencyShares Euro Trust ETF (FXE) settled at $97.75, up $0.36 or +0.37%.

US, Euro Zone Economic News

The greenback briefly pared losses after data on Friday showed that U.S. consumer spending increased more than expected in March amid strong demand for services, while monthly inflation surged by the most since 2005.

Meanwhile, in the Euro Zone, inflation hit a record high for the sixth consecutive month, sparking further questions over how the European Central Bank will react.

Headline inflation in the 19-member region reached 7.5% in April, according to preliminary estimates by Europe’s statistics office released Friday. In March, the figure came in at 7.4%.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.0472 will signal a resumption of the downtrend.

A move through 1.0936 will change the main trend to up. This is highly unlikely, but there is room for a normal 50% to 61.8% retracement of its short-term sell-off.

The minor range is 1.0936 to 1.0472. Its retracement zone at 1.0704 to 1.0759 is the nearest upside target. Since the main trend is down, sellers are likely to come in on a test of this area.

Short-Term Outlook

The daily chart suggests that the line in the sand for the EUR/USD is 1.0472. If this level is taken out with conviction, the Forex pair could plunge into the January 3, 2017 main bottom at 1.0339.

The Euro has dropped sharply since Russia’s invasion of Ukraine, with investors concerned about Europe’s energy security, inflation and growth. These worries aren’t about to go away soon, but we suspect the Fed’s rate hike has been priced in.

This means we could see a short-covering rally after the Fed’s interest rate announcement on May 4, but gains are likely to be limited because of the other major concerns.

Meanwhile, Euro traders still face uncertainty over the direction of interest rates even after the latest surge in inflation.

European Central Bank (ECB) Vice President Luis de Guindos tried to reassure lawmakers over rising prices on Thursday, saying the Euro Zone is close to reaching peak inflation. The central bank sees price pressures diminishing in the second half of this year, although energy costs are expected to keep inflation relatively high.