EUR/USD Forex Technical Analysis – May Be Setting Up for Short-Squeeze

The Euro is inching higher early Tuesday after posting a slightly better close the previous session. Yesterday’s price action was an inside move. They typically indicate investor indecision and impending volatility. In this case, it looks as if it’s signaling a transition from bearish to bullish.

At 03:46 GMT, the EUR/USD is trading 1.0575, up 0.0016 or +0.15%. On Monday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $97.82, up $0.13 or +0.13%.

Driving the price action in the single currency was a drop in Treasury yields and a weaker U.S. Dollar. U.S. Treasury yields rose early Monday and the benchmark 10-year climbed to its highest level since November 2018 amid concerns of surging inflation pressures and slowing economic growth. The move helped drive the greenback to a 20-year high against a basket of major currencies.

The gains in the dollar couldn’t be sustained, however, as the 10-year Treasury note fell 9 basis points to 3.034% after hitting a high of 3.17%. Meanwhile the yield on the 30-year Treasury bond fell 7 basis points to 3.152.

If yields continue to fall on profit-taking in the bond market then look for a similar move in the U.S. Dollar. This should help support a higher Euro. The common currency may also be ripe for a short squeeze so be prepared for a sizable retracement rally.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.0642 will change the main trend to up. A move through 1.0472 will signal a resumption of the downtrend.

The minor range is 1.0472 to 1.0642. The EUR/USD is currently trading on the strong side of its pivot at 1.0557, making it early support.

The short-term range is 1.0936 to 1.0472. If the main trend changes to up then look for a surge into its retracement zone at 1.0704 to 1.0759.

Daily Swing Chart Technical Forecast

The direction of the EUR/USD early Tuesday is likely to be determined by trader reaction to 1.0557.

Bullish Scenario

A sustained move over 1.0557 will indicate the presence of buyers. If this move creates enough upside momentum then look for an intraday rally into the main top at 1.0642.

Taking out 1.0642 will change the main trend to up. This move could create the upside momentum needed to challenge the short-term 50% level at 1.0704.

Sellers could come in on the first test of 1.0704, but overcoming could trigger another surge into the short-term Fibonacci level at 1.0759.

Bearish Scenario

A sustained move under 1.0557 will signal the presence of sellers. If this move generates enough downside momentum then look for a break into the low at 1.0483. Taking out this level will indicate the selling is getting stronger with the main bottom at 1.0472 the next target.

Taking out 1.0472 will reaffirm the downtrend. This could trigger an acceleration to the downside with the next target the January 3, 2017 main bottom at 1.0339.