EURUSD has been selling off since the start of the month but it seems to be making a correction for the past few days. Price has popped up from the 1.0500 area to the 1.0700 levels, which is close to the 38.2% Fibonacci retracement on the 1-hour time frame.
In addition, the 38.2% Fib is in line with a former support level, which might now hold as resistance. Stochastic is showing a shallow bearish divergence and is already moving down from the overbought zone, suggesting that price could resume its downtrend from here.
If so, EURUSD could fall back to the previous lows around the 1.0500 handle or perhaps create new ones. On the other hand, a higher retracement might still last until the 50% Fibonacci retracement level close to the 1.0800 mark or until the 61.8% Fibonacci retracement level at 1.0850.
Demand for the US dollar has significantly weakened these days since the US just printed a bunch of weak figures. Starting from the dismal NFP reading for March until the weaker than expected retail sales readings, it seems that traders are now doubting that the Fed can afford to tighten monetary policy this year.
Meanwhile, ECB Governor Draghi has reiterated that there are a lot of green shoots in the euro zone right now. Although he said that an exit from their ongoing QE program isn’t likely at the moment, he also mentioned that their stimulus is starting to take effect.
With that, traders might keep paring their short EURUSD positions until the US economy does show more signs of progress. Shorting at 1.0700 with a wide stop past the 61.8% Fibonacci retracement level could offer enough leeway. Take note though that the short-term EMA is starting to cross above the long-term EMA, suggesting that the pair could be in for a few more gains.
By Kate Curtis from Trader’s Way