EURUSD continues to advance and positive updates from Germany’s coalition talks over the weekend could sustain the climb.

However, price is hitting a roadblock at its short-term channel resistance and might need a correction before heading further north.

Applying the Fibonacci retracement tool on the latest swing low and high shows that the channel support is in line with the 61.8% level at 1.2100. The 100 SMA is above the longer-term 200 SMA to indicate that the path of least resistance is to the upside. Also, the 100 SMA lines up with the channel support to add to its strength as a floor.

Stochastic is pointing down to show that sellers are returning even without seeing overbought conditions. Reaching the oversold level and turning back up could draw more buyers to the game and possibly even lead to a break past the channel resistance.

Flash PMI readings from Germany and France are lined up from the euro zone this week, and these usually provide strong clues on how the economy might fare in the next few months. However, traders are starting to get concerned about the shared currency’s appreciation as some ECB officials pointed out that this could dampen inflation. The ECB decision is also scheduled this week. 

Apart from that, German coalition updates continue to push the shared currency around as the prospect of political uncertainty has been bearish. On the other hand, a definitive agreement between Merkel’s party and SPD could lead to more gains.

As for the dollar, government shutdown concerns have been mostly bearish for the currency over the past week and could continue to weigh on US assets while it lasts. Only the advanced GDP report is due from the US this week, but the attention could be fixed on Washington.

By Kate Curtis from Trader’s Way