EURUSD Correction Setup (Oct 14, 2016)

EURUSD recently broke below its descending triangle support at 1.1130 and has dipped to a low of 1.0988 before showing signs of a pullback. Applying the Fib tool on the latest swing high and low shows that the 61.8% Fibonacci retracement level lines up with the broken support, which might now hold as resistance.

The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. However, stochastic is heading up, which means that buyers are in control of price action for now. In that case, a higher pullback could be possible and the line in the sand might be the top of the triangle around 1.1175-1.1200.

If any of these resistance levels hold, EURUSD could make its way back to the previous lows or lower. On the other hand, a move past the 1.1200 resistance could put the pair back on an uptrend.

Medium-tier economic reports from the US came in stronger than expected yesterday. Initial jobless claims stood at 254K, same as in the earlier week, and lower than the estimated 252K figure. Meanwhile, import prices posted the estimated 0.1% increase as expected, chalking up a rebound from the previous 0.2% dip.

Euro zone data has also been mostly in line with expectations for the week, with the ZEW economic sentiment readings released earlier on indicating a notable pickup in optimism. However, widening bond yield spreads between Germany and the US has highlighted the surge in demand for US assets, leading to a sharp drop for the shared currency midweek.

Up ahead, US retail sales and PPI numbers are due. Analysts are expecting to see a 0.6% gain in headline retail sales and a 0.4% uptick in core retail sales, representing rebounds over their previous readings. Producer prices are expected to post a 0.2% uptick for the headline figure and a 0.1% rise for the core figure. The preliminary UoM consumer sentiment for October is also lined up and a rise from 91.2 to 92.1 is expected.

By Kate Curtis from Trader’s Way