The pair made its way up to the 61.8% retracement of the 1.37/1.27 swing, closing the week just few pips above this important level for bearish considerations. Will it continue its ride higher or just correct sharply?

Contradictory fundamentals

Given the scope of losses of the greenback versus other majors, the recent surge in the EURUSD can be attributed more to dollar weakness than euro strength. The talk of the Federal Reserve starting to taper its quantitative easing policy appears to be a bit premature, as the economic indicators remain unimpressive. On the other side of the Atlantic, sentiment also remains muted after ECB’s Draghi gave no immediate indication on cutting the deposit rates to below zero. The ECB also cut its growth projections for the region recently, reminding a fragility of the recovery.

Waiting for Fed, PMI

Looking at the economic calendar for next week, it may be a good strategy to delay opening longer-term positions until the Wednesday’s Fed policy decision, which may set a tone for mid- to long term sentiment on the dollar. On Thursday, a fresh set of manufacturing and service PMI will likely underline the weakness in the region. Also watch out for the rising sovereign yields in Italy and Spain, which haven’t mirrored in the euro weakness since early May.

Still, a correction, even short-term, is more likely to occur now following the recent strong gains, and given the fundamentals, but it is advisable to be patient as we have come to an important technical level.