EURUSD recently broke below support around the 1.1850 minor psychological level then dropped close to the 1.1700 mark.

Price appears to be making a correction from here and applying the Fibonacci retracement tool shows that the 50% level lines up with the broken support. 

The 100 SMA is still above the longer-term 200 SMA on the 4-hour time frame so the path of least resistance might still be to the upside. The 200 SMA dynamic inflection point is slightly above the area of interest, adding to its strength as a ceiling. The 100 SMA is slightly above the 61.8% Fib, which might be the line in the sand for a correction. 

Stochastic is heading north so EURUSD could follow suit. Once the oscillator hits overbought levels and turns lower, selling pressure could return and bring the pair back down to the swing low or lower. 

Euro zone economic data turned out weaker than expected yesterday, with the German GfK consumer climate index dipping from 10.9 to 10.8 instead of improving to the consensus at 11. Meanwhile, German preliminary CPI printed another meager 0.1% uptick. 

As for the dollar, the focus on tax reform has allowed equities and the currency to regain a lot of ground. To top it off, renewed Fed December hike expectations are also keeping the currency supported, along with upgraded growth forecasts and the start of the balance sheet runoff next month.

However, Fed head Yellen sounded less hawkish in her latest speech, casting doubt on tightening expectations. Traders are likely to keep close tabs on next week’s NFP report since Yellen admitted they may have overestimated the strength of the labor market and its impact on inflation. 

By Kate Curtis from Trader’s Way