EUR/USD Breakdown Post-ECB Points to 11240

Check out the fundamental view on EURUSD in our Q4 Forecast.

Back on the 17th we initially brought to the light the possibility of a ‘head-and-shoulders’ top, but at that time we still needed a couple of things to happen before we could give it the green light. Since then the ‘right shoulder’ has been put into place and a daily close below the ‘neckline’ occurred yesterday in the wake of a dovish ECB. It’s now become one of the most popular technical themes in the market-place, which can give pause to the idea that the pattern will result in the decline it implicates will happen. But we can only take set-ups as they are presented, manage risk, and if it works it works, if it doesn’t it doesn’t. That’s trading…

A couple of approaches can be taken here depending on your style. For swing-traders, the daily close below the ‘neckline’ was the official signal. Looking to a target, we can derive a 'measured move target' by subtracting the height of the H&S pattern from its ‘neckline’. This method, based on symmetry, provides an end-target of around 11240. There is support along the way at 11429, 11366, 11296, & 200-day MA. Those could be used to scale out of positions or as reference points from which to trade around a core holding.

For the shorter-term minded trader (1-5 days), then using the broader breakdown as a signal of the path of least resistance helps mold future set-ups which may occur on the daily time-frame on down (i.e. 1-hr, 4-hr).

Looking for an invalidation point brings the ‘trigger candle’ and trend-line running down off the September high into focus. A push beyond those points of resistance would bring caution for shorts. More backing-and-filling without momentum could always bring a bull-flag into play, but, again, we'll operate off of what is in front of us now and go from there.

See this guide for tips on Building Confidence in Trading

EURUSD: Daily

Updates with short-term set-ups will be provided in the “London FX & CFD Trading” webinars on Wednesday/Friday of each week. For details, check out the Webinar Calendar.

Trade Parameters:

Entry: At market or first bounce

Stop: 11850

Targets: 11240, with 11429, 11366, 11296, & 200-day MA as support along the way

---Written by Paul Robinson, Market Analyst

You can receive Paul’s analysis directly via email by signing up here.

You can follow Paul on Twitter at @PaulRobinonFX.