EURUSD Short-Term Selloff Signal (Jan 12, 2016)

However, a short-term drop might be in the cards as a double top can be seen on the 1-hour time frame.

The pair has failed in its last two attempts to break past the 1.0950 minor psychological mark and has found support at the 1.0800 neckline. A break below this level could confirm that a selloff is underway, possibly taking EURUSD back to the previous lows at 1.0700 or much lower.

The 100 SMA is still below the 200 SMA on the 1-hour chart but looks prime for an upward crossover, which means that another bounce could be possible. In that case, price could still make another test of the 1.0950 resistance or possibly break above it. Stochastic is moving up from the oversold area, hinting that buyers are taking control of price action.

Event risks for this trade setup include the US retail sales and PPi reports due later on in the week. Last week's jobs data turned out mostly stronger than expected, although wage growth was absent. Nonetheless, the December consumer spending report could be lifted by holiday shopping and might beat expectations.

As for the euro, economic data has been mixed lately, but the shared currency has drawn support from funds flowing out of China and into the European markets. There are no major reports due from the euro zone today, as the next catalyst might be the ECB minutes due on Thursday.

Risk sentiment could still play a key role in price action moving forward, particularly the behavior of Asian financial markets. Another weak performance out of China could spur more declines in global equities, leading traders to buy up the safe-haven US dollar.

By Kate Curtis from Trader's Way