EURUSD recently broke below a rising trend line on its daily time frame, signaling that the uptrend is over. Price dipped to a low of 1.0925 then showed signs of a pullback. Applying the Fib tool on the swing high and low shows that the 61.8% retracement level lines up with the broken trend line, which might now hold as resistance.
However, the 100 SMA is still above the 200 SMA so the path of least resistance could be to the upside. If EUR/USD moves back above the trend line, another test of the long-term resistance around 1.1450-1.1500 could take place.
Stochastic is also pointing up so EURUSD might follow suit. However, if sellers take control, price could head to its previous lows or even create new ones closer to the long-term range support at 1.0600.
Event risks for this setup include ECB Governor Draghi’s testimony during which he might disclose more details on what the central bank plans to do after the Brexit. Recall that Draghi backed out of the EU Summit, presumably to spend more time figuring out their policy adjustments from here. Draghi also mentioned in a recent testimony that “further stimulus is in the pipeline” which could mean further rate cuts or a larger QE program.
Aside from that, the FOMC minutes are also up for release on Wednesday but these might not contain any surprises since this meeting took place prior to the EU referendum. Fed head Yellen also backed out of the EU Summit, possibly to iron out their game plan after the Brexit as well.
Data from the euro zone has been mostly upbeat, though, as the region’s flash CPI estimates were slightly better than expected. Meanwhile, data from the US has also been stable but traders are waiting for Friday’s NFP release to see if a rebound in hiring has taken place last month. Traders are expecting to see a 174K increase in employment.
By Kate Curtis from Trader’s Way