The euro is slightly higher against the US dollar early Friday. Single-currency traders are buying on the expectation of an earlier-than-expected rate hike from the European Central Bank (ECB). Meanwhile, the US dollar is under pressure from lower expectations for a Federal Reserve rate hike amid signs that the central bank may slow or even pause its tightening cycle in the second half of the year.
At 05:15, EUR/USD is trading at 1.0756, up 0.0025 or +0.24%. On Thursday, the Invesco CurrencyShares Euro Trust settled at $99.28, up $0.42 or +0.42%.
Euro lifted by rate hike expectations
Earlier in the week, the euro surged after European Central Bank President Christine Lagarde said eurozone interest rates would likely be in positive territory by the end of the third quarter.
Lagarde’s comments implied a hike of at least 50 basis points in the ECB’s deposit rate and fueled speculation of bigger hikes this summer to combat a spike in inflation linked to higher oil prices. the energy caused by the war in Ukraine and a massive revival of the public sector after the start of the coronavirus pandemic.
Fed Minutes, U.S. Economic Data Weigh on Dollar
The US dollar is coming under pressure after Fed minutes were seen as much less hawkish than traders expected. The price action suggests traders are now anticipating fewer rate hikes due to slowing economic growth.
Weaker-than-expected GDP and jobless claims data helped fuel that assessment on Thursday.
First-quarter gross domestic product fell at an annual rate of 1.5%, worse than the Dow Jones estimate of 1.3% and a depreciation from the 1.4% originally reported, the department reported Thursday. Trade.
Additionally, initial claims for the week ending May 21 totaled 218,000, up from the prior period and slightly above the estimate of 215,000.
Technically speaking, the main trend is up according to the daily swing chart. A trade through 1.0354 will change the main downtrend. But since the market is up 10 sessions from its last major low, we are likely to see a reversal top in closing prices before we see a change in trend.
The minor trend is also up. A trade through 1.0642 will change the main trend to the downside and shift the momentum to the downside.
Short-term support area is 1.0714-1.0645. The closest resistance is the major retracement area between 1.0770 and 1.0868.
Short term forecast
The reaction of traders at 1.0730 will likely determine EUR/USD’s direction on Friday.
A sustained move above 1.0730 will indicate the presence of buyers. The first upside target is the main 50% level at 1.0770.
Sellers could enter the first test of 1.0770, but if buying is strong enough to pull it back, then expect the rally to eventually extend to the Fibonacci level at 1.0868. This is the last potential resistance ahead of the main high at 1.0936.
A sustained move below 1.0730 will signal the presence of sellers. If that creates enough downside momentum, expect selling to eventually extend to the 50% level at 1.0645, followed by the minor low at 1.0642. This is a potential trigger point for downward acceleration.