EURAUD recently broke above the resistance at 1.5600 before climbing close to the 1.6000 major psychological resistance. The pair has since pulled back from the rally and is retesting the former ceiling.

The Fibonacci retracement tool shows that this lines up with the 50% Fibonacci retracement level and the 200 SMA dynamic inflection point. A larger correction could reach the 61.8% level at 1.5540, which might be the line in the sand for a pullback.

The 100 SMA is above the 200 SMA to confirm that the path of least resistance is to the upside or that support levels are more likely to hold than to break. In that case, EURAUD could make its way back to the swing high or higher soon.

Stochastic is already starting to pull higher from the oversold region to indicate that buyers are taking over. The oscillator has plenty of room to climb before reaching overbought levels, so buying energy could last a while.

Meanwhile, RSI appears to be moving sideways to reflect market consolidation.

There are no major reports from both Australia and the eurozone throughout the week, although the flash CPI estimates from Europe are worth keeping tabs on.

Headline inflation is projected to have slowed in December but core inflation likely ticked higher. Stronger than expected results could keep euro bulls hopeful for another aggressive tightening move from the ECB while downbeat data could mean downside for the shared currency.

Also, risk sentiment could get pushed around by top-tier US economic events, including the FOMC minutes and NFP release. Hawkish remarks from the US central bank could keep investors wary of a global recession due to high borrowing costs, possibly leading to losses for the higher-yielding Aussie.

On the other hand, cautious remarks suggesting that the Fed would end its tightening cycle soon might mean upside for risk assets.