EURUSD is currently testing the descending triangle resistance and might be due for a move back to the support at the 1.0850 minor psychological level.

Stochastic is pointing down, indicating that sellers are in control, while RSI is on middle ground.

Price is also drawing resistance from the long-term 20 SMA, which has acted as a dynamic inflection point in the past. The 100 SMA is below the 200 SMA, confirming that the path of least resistance is to the downside.

Further selling pressure could trigger a break of the triangle support, potentially leading to more losses for EURUSD. The chart pattern is around 500 pips in height, which means that the resulting breakout could be of the same size.

Event risks for this trade setup include the US NFP release later on in the week, as this could confirm whether or not the Fed can hike interest rates by September. Strong data could favor tightening by then, which would mean strong demand for the US dollar. On the other hand, weak data could spur a selloff for the dollar and a possible upside break from the descending triangle.

By Kate Curtis from Trader’s Way