EUR/USD Bearish Correction to .9950?

EURUSD is in correction mode from its downtrend and looks poised to test the short-term falling trend line on its hourly chart. The Fibonacci retracement tool shows additional levels where sellers might be looking to hop in.

The pair is already testing the 38.2% level at .9787 but might still pull higher to the 50% Fib at .9867. A larger correction could reach the 61.8% Fib near the falling trend line, .9950 minor psychological mark and 200 SMA dynamic inflection point.

On the subject of moving averages, the 100 SMA is below the 200 SMA to indicate that the path of least resistance is to the downside or that the selloff is more likely to resume than to reverse. In that case, EURUSD could soon make its way down to the swing low near the .9600 handle.

Stochastic is already in the overbought region to reflect exhaustion among buyers, so turning lower would mean a return in selling pressure. RSI has a bit more room to climb before reaching the overbought area, so the correction could keep going until it does.

Eurozone flash CPI readings are up for release today, and analysts are expecting a strong pickup in price pressures. Headline CPI is slated to accelerate from 9.1% to 9.7% while the core CPI could advance from 4.3% to 4.7%.

Stronger than expected eurozone inflation figures could stoke ECB rate hike hopes, especially since some members have been calling for a bigger increase in interest rates.

Meanwhile, the US dollar could take cues from the core PCE price index, which is slated to tick higher from 0.1% to 0.5%. Stronger than expected data could ramp up Fed tightening hopes, possibly renewing calls for a 1.00% interest rate hike again.

On the other hand, weaker than expected US inflation data could bring some downside for the dollar since it would dash hopes of another aggressive tightening move.

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