EUR/USD correction from highs are shallow to 1.1780 support, where next?

• EUR/USD unable to convince on the upside, 1.18 caps.
• EUR/USD bears looking for a break of key 1.17 level on FOMC hopes.

EUR/USD is basing after a correction of its latest highs and is currently trading at 1.1792, up 0.23% on the day, having posted a daily high at 1.1812 and low at 1.1762.

In the absence o fresh impetus ahead of this week's ECD and FOMC meetings, EUR/USD has been riding on negative flows in the dollar on Monday after recording six sessions without an advance last week, the longest such since November 2016. The DXY is down 0.09% at the time of writing at 93.81 having traded between 93.666 - 93.918 on the day so far.

Where is the dollar heading?

However, the risk to the upside in the dollar is elevated on expectations of US tax reform, some renewed talk of an infrastructure initiative, and data that gave no reason to doubt a Fed hike this week. However, it is going to be the Fed's statement that will be the main focus should the Fed hike as expected by 0.25%. There is the risk that the dollar could come under further pressure f the Fed fails to deliver a hawkish statement ahead of the looming leadership transition." 

"Bloomberg’s survey of forecasts for the Eurozone showed improving growth momentum (2018 and 2019 forecasts marked up 0.2 points to 2.1% and 1.8% respectively on average), which may be reflected in the ECB’s tone in Thursday’s policy statement. Inflation remains below target through 2019, however, and rate increases remain a 2019 story, according to the consensus outlook—which largely echoes our own view on ECB policy prospects," explained analysts at Scotiabank.

EUR/USD levels

EUR/USD corrected from bearish technical readings on Monday, however, loss of minor support at 1.1760/80 this week could see the EUR headed back to the low/ mid 1.17s where the 1.1700 area is an important support.  "A break could spur a test on even more significant support in the $1.1550-$1.1600 band," argued analysts at Brown Brothers Harriman. To the upside, Valeria Bednarik, chief analyst at FXStreet explained that the pair has been unable to surpass the 61.8% retracement of the late November bullish run around the 1.1800 figure, presenting a neutral stance in the 4 hours chart. "Technical indicators have completely corrected oversold conditions, but lost upward strength once reaching their mid-lines, suggesting the corrective movement may well be over. In the same chart, the price stands a few pips above a still bearish 20 SMA, but between horizontal larger ones, a sign of the current lack of directional strength," Valeria added.