EUR/USD – Heading for a correction?

How big will it be?

We’ve seen a slight recovery in EURUSD over the last week, taking the pair back to the top of the descending channel it’s traded in since mid-June.

The top of the channel coincides with the 38.2 fib level (September highs to October lows) so could mark a shallow correction in the downtrend. Or it could be the first test in a broader corrective move.

A move through the descending channel could point to a much larger correction in the dollar, which has been slipping across the board recently and may continue to if markets continue to price in more aggressive tightening from central banks around the world.

The next test for the pair above the descending channel falls around 1.17, the 200/233-period SMA on the 4-hour chart. The real test, though, lies around the 50 and 61.8 fib levels, which coincides with the 55/89-day SMA band.

A move above here could be a very bullish signal for the pair.

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