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EUR/USD – Top and Drop or Break From Typical Behavior?

EUR/USD – Top and Drop or Break From Typical Behavior?

Paul Robinson, Strategist

EUR/USD Highlights:

  • Euro trying to hold, but at trend-line and…
  • Short-term H&S pattern may send lower

The EUR/USD rally since last month is at risk of failing, in-line with how it has behaved since early 2018. Rallies have been unable to hold for more than a week or so once they became extended. If price can maintain around trend-line resistance, then a change in character could be underway.

However, there is a short-term technical pattern developing that threatens the advance. The head-and-shoulders formation on the 4-hr chart could be putting in a right shoulder if it continues to roll over. The pattern isn’t valid, or even a pattern, until it breaks the neckline of the formation. So while it looks like a good sequence it can’t be counted in the books yet.

An alternate pattern could develop (i.e. falling wedge) that would have bullish implications, or price may turn higher very soon and never solidify the right shoulder. With that in mind, it is important to be patient in waiting for the full sequence to play out before turning aggressively bearish.

Should we see price drop below the neckline around the 11180 mark, then a full reversal could be in order back under 10900 where there is major long-term trend-line runs up from 2000, and even further back if you reconstruct the Euro from its consistent prior to the single currency’s existence.

If, however, the pattern fails to materialize and a rally develops beyond 11422, we could see a much larger run be put together as EUR/USD finally breaks character and makes good on extending a rally. In this case 11495 would be up next as resistance, followed by the 2008 trend-line up around 11700.

EUR/USD Daily Chart (top or consolidation?)

EUR/USD daily chart

EUR/USD Chart by TradingView

EUR/USD 4-hr Chart (Potential H&S pattern)

EUR/USD 4hr chart

EUR/USD Chart by TradingView

***Updates will be provided on the above thoughts and others in the trading/technical outlook webinars held at 930 GMT on Tuesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday each week for the Becoming a Better Trader webinar series.

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.