EUR/USD Forex Technical Analysis – Weakens Under 1.0519, Strengthens Over 1.0571

The Euro fell to a three-week low against the U.S. Dollar on Friday, after U.S. government data revealed U.S. consumer prices accelerated in May. The news drove Treasury yields and the dollar sharply higher as it strengthened expectations the Federal Reserve may have to continue with interest rate hikes through September to fight soaring inflation.

On Friday, the EUR/USD settled at 1.0518, down 0.0100 or -0.94%.

US Inflation Gauge Soars Beyond Expectations

The U.S. consumer price index, a closely watch inflation gauge, rose by 8.6% in May on a year-over-year basis, its fastest increase since 1981, the Bureau of Labor Statistics reported Friday. Economists polled by Dow Jones expected a gain of 8.3%.

The so-called core CPI, which strips out volatile food and energy prices, rose 6%. That was also above the estimate of 5.9%.

Surging Inflation, Higher Yields, Stronger Dollar, Weaker Euro

U.S. Treasury yields popped Friday, led by short-term rates, after the release of hotter-than-expected inflation data raised concern over a possible recession. The 2-year rate jumped more than 24-basis points to 3.065%, reaching its highest level since 2008. The benchmark 10-year Treasury yield also rose sharply, last trading at about 3.157%.

The jump in yields and the anticipation of a more aggressive Fed helped make the U.S. Dollar a more attractive investment.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.0506 early Monday will signal a resumption of the downtrend. A trade through 1.0774 will change the main trend to up.

The short-term range is 1.0354 to 1.0787. On Friday, the EUR/USD close slightly below its retracement zone at 1.0571 to 1.0519, making this area resistance.

Daily Swing Chart Technical Forecast

Trader reaction to the Fibonacci level at 1.0519 is likely to determine the direction of the EUR/USD early Monday.

Bearish Scenario

A sustained move under 1.0519 will indicate the presence of sellers. If this move continues to create enough downside momentum then look for a possible acceleration to the downside with 1.0354 to 1.03339 the next target zone.

Bullish Scenario

A sustained move over 1.0519 will signal the presence of buyers. This could trigger a surge into 1.0571.

Sellers could come in on the first test of 1.0571, but overcoming it could extend the rally into the short-term pivot at 1.0640.