EURUSD previously broke past the range resistance at the 1.1450 minor psychological level to indicate that bullish momentum has won over. Price stalled in its rally near the 1.2100 major psychological level and showed signs of a correction to the broken ceiling.
Applying the Fibonacci retracement tool on the latest swing high and low on the daily time frame shows that the 38.2% level lines up with the area of interest at which several buyers might be waiting. However, the 100 SMA is still below the longer-term 200 SMA on this chart so the path of least resistance is to the downside.
Stochastic is also just starting to turn down from the overbought zone to reflect a pickup in selling pressure. This could lead to a deeper pullback to the lower Fib levels, namely the 50% level at 1.1200 and the 61.8% level at 1.0500 near the 100 SMA dynamic support.
Euro zone economic reports have been mixed, with the latest flash CPI readings dampening hopes of ECB tapering this month. Leading indicators such as industry PMIs have printed upbeat results, though, while Spain’s unemployment change figure released yesterday fell short.
Another factor weighing on the shared currency is the political uncertainty stemming from the Catalan elections. The push for independence could set a precedent for other cities seeking their own government and might put the stability of the union at risk.
As for the dollar, traders are keeping close tabs on leading indicators for employment as this could contain clues on how the official NFP report might turn out. Strong data could bolster Fed rate hike expectations for December and push the dollar higher, along with the increased focus on tax reform.
By Kate Curtis from Trader’s Way