EUR/USD – Correction due?

Or more downside to come?

The last four months have seen the euro fall quite considerably against the dollar, down more than 6% in that time.

Rising US yields in recent months have contributed to the rally in the dollar, as has risk aversion in recent weeks, but how much more can we expect?

In many ways, that depends on how much policymakers are willing to tolerate, both in terms of inflation and the taper tantrum we’re seeing unfold.

The oscillators suggest momentum is waning. But for how long? Say we see a correction at 1.15 – 50 fib of pandemic highs to lows – how long until the dollar is back in favour?

That’s hard to know, but 1.1650 and 1.18 both look like very interesting resistance levels. A move above the latter takes the pair back above the 55/89-day SMA band. Then suddenly 1.19 and 1.20 are back in focus.

A move below and 1.14 and 1.13 (61.8 fib) are in focus and things start to get really interesting.

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