EURUSD has formed lower highs and found support at the 1.1130 area, creating a descending triangle formation on its 4-hour chart. Price is currently testing the triangle resistance and might be due for a drop back towards support.
The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside, adding confirmation that the triangle resistance could keep gains in check. Stochastic is also on the move down, which suggests that sellers are in control of price action for now.
However, the oscillator is nearing the oversold zone so this bearish pressure could fade soon. In that case, price could make another bounce off support and go for a climb back to the resistance at 1.1250. Stronger bullish momentum could trigger a breakout, which could result in a rally of around 200 pips, which is the same height as the chart formation.
Economic data from the US came in mostly stronger than expected yesterday, with both the flash services PMI and CB consumer confidence index beating expectations and hinting at stronger business and consumer activity down the line. Data from the euro zone fell short of estimates, with German import prices down 0.2% versus the projected 0.1% dip, adding downside pressure on inflation.
For today, Germany will print its GfK consumer climate index and likely show no change from the previous 10.2 reading. The US is set to report durable goods orders data, with analysts expecting to see a 1.0 drop in the headline figure and a 0.5% decline in the core reading. Fed head Yellen and FOMC member Bullard also have testimonies lined up, as hawkish remarks could keep the dollar supported on rate hike hopes.
ECB head Draghi also has a testimony lined up but his speech earlier in the week didn’t contain much surprises. Still, any remarks cautioning about the impact of the Brexit on the euro zone economy could keep a lid on the shared currency’s gains.
By Kate Curtis from Trader’s Way