EURUSD appears to be tired from its climb as the pair is forming a double top reversal pattern on its 4-hour time frame. Price failed in its last two attempts to break past the 1.2070 area and is on its way to testing the neckline at the 1.1850 minor psychological support.
A break below the neckline support could confirm the potential selloff, which might last by around 200 pips or the same height as the chart formation. However, the 100 SMA is above the longer-term 200 SMA so the path of least resistance is still to the upside. In addition, the moving averages are close to the neckline, adding strength to support.
Stochastic is pointing down to indicate that sellers are in control of EURUSD price action, but the oscillator is closing in on the oversold level to signal that profit-taking might happen soon.
The dollar has been able to recover against most of its peers at the start of the week, thanks to strong stock market performance and easing geopolitical concerns. The US government has dialed down on its proposed sanctions on North Korea, lowering the chances of another retaliation from the hermit nation. Apart from that, news that Hurricane Irma is weakening has also been positive for the US markets.
Data from the euro zone has been stronger than expected as Italian industrial production ticked 0.1% higher instead of posting the projected 0.5% decline. French final non-farm payrolls for Q2 and the Italian quarterly unemployment rate are lined up next. Only the NFIB Small Business Index and JOLTS job openings are due from the US today.
Keep in mind, however, that the ECB is currently undergoing tapering expectations for either October or December even after Governor Draghi tried to downplay the idea in their statement last week. Meanwhile, Fed rate hike expectations for this month are running low but the idea of starting the balance sheet runoff could still keep the dollar supported.