EURUSD has been trending higher over the past few weeks and is currently above a steep rising trend line on its 1-hour chart. Price is bouncing off this support zone, which lines up with the 50% Fibonacci retracement levels, and is setting its sights on the swing high around 1.2525.
The 100 SMA is above the longer-term 200 SMA to confirm that the path of least resistance is to the upside. This short-term moving average also appears to be holding as dynamic support, but a larger dip could still find a floor at the 200 SMA dynamic inflection point near the 61.8% Fib.
Stochastic is still on its way down and has yet to indicate oversold conditions, which means that sellers could still have the upper hand for now. This could keep the correction going until the oscillator turns up from oversold levels.
Economic data from the euro zone came in mixed, with French flash GDP up by 0.6% versus the estimated 0.5% expansion. German preliminary CPI turned out below expectations with a 0.7% drop, though, lower than the estimated 0.5% dip. The region’s flash GDP came in line with estimates of a 0.6% growth figure.
The dollar struggled to hold its ground on risk aversion and rising US bond yields but wound up weakening to most of its rivals ahead of the State of the Union Address and FOMC decision. Month-end profit-taking could also be blamed for the dip.
Up ahead, the Chicago PMI and ADP non-farm employment numbers are also due and these could shape expectations for Friday’s NFP report. Stronger than expected data, combined with hawkishness from the Fed, could allow the dollar to make a stronger rebound.