Sell-off running on fumes
EUR/USD has been on a downtrend for the last few months but with momentum running low, it may be preparing for a correction.
A move through the descending channel may signal that a corrective move is underway, especially with the breakout also coinciding with a move above the 55-day SMA which it has traded below since the middle of June.
A move through here would draw attention to 1.19 – the 38.2% retracement of the move from the May highs to August lows – which coincides with the late July/early August highs.
Above here, the 50 and 61.8 fib levels roughly coincide with the 200/233-day SMA band around 1.20. This would be a big test for the pair, with a move above suggesting more than a retracement may be on the cards.
A breakout may not happen immediately though, with the 4-hour chart suggesting momentum in the rally of the last week is slowing on approach to 1.18, which coincides with the 200/233-period SMA band.
Given what is happening on the daily chart , any pullback from this level could be temporary. A move above the SMA band on the 4-hour chart could see a strong run at the top of the descending channel .
Of course, what Fed Chair Jerome Powell says on Friday may have a big role to play in the dollar movements in the coming days.