Thanks to its recent rallies for the first few trading sessions this week, EUR/USD was able to pull up to the former support level around the 1.2850 minor psychological handle. 

This is closely in line with the 38.2% Fibonacci retracement level on the 1-hour time frame.

In addition, stochastic appears ready to drop down form the overbought region, suggesting that euro bears are about to have the upper hand soon. If that’s the case, EUR/USD could head back south until its previous lows around 1.2775.

There are a few minor market catalysts on tap from the euro zone for today. The German preliminary CPI, Spanish employment data, and Italian manufacturing PMI are all on tap and these could provide some volatility for euro pairs. Weaker than expected figure from these top economies in the region could weigh on the euro.

Shorting at the 1.2850 area and aiming for 1.2775 with a 25-pip stop could be a 3:1 trade. Aiming lower could yield a better reward-to-risk ratio but this might require you to hold on to the trade until after the U.S. session. There are no top-tier reports on tap from the U.S. today, which suggests quiet trading during the New York market hours.

By Kate Curtis from Trader’s Way