EUR/USD Weekly Technical Analysis: More Euro Selling Ahead
- EUR/USD completes ‘head-and-shoulders’ top, closes week below the ‘neckline’
- Now that the pattern has been validated, further losses expected
- Support levels to watch along the way, but ‘measured move target’ points to 11240 end-target
Finally, the developing ‘head-and-shoulders’ pattern we’ve been watching was validated on Thursday when a dovish ECB spurred enough selling to push EUR/USD through ‘neckline’ support. Up until that point the euro was only sporting ‘pattern potential’. With the path of least resistance looking lower, we’re now turning our focus to levels along the way and where, if the H&S is to be invalidated, we should back away from a bearish bias.
For starters, we may very well see a bounce and retest of the neckline around the 11670-threshold. Retesting the ‘neckline’ is a fairly common occurrence and can offer traders a spot to establish (or add to) short positions. We may even see a stronger bounce develop back above resistance, but is likely to prove short-lived if the topping formation is to exert downward pressure. At this time, it will require a move above the trend-line running down off the September high and overtaking of Thursday’s sharp sell-off to bring pause to last week’s break.
Looking lower, there is support not far below at the lower parallel tied to the trend-line off the September high. After this minor level of support, nothing meaningful arrives until 11429, 11366, 11298, and the 200-day MA (currently 11243, but rising). The ‘measured move target’(MMT) clocks in at ~11240. The ‘MMT’ is calculated by simply subtracting the height of the pattern (head to neckline) from the neckline. It’s a symmetry-based target.
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On the flip-side, the euro drove the US Dollar Index (DXY) above its respective neckline of a mirror image pattern – inverse ‘head-and-shoulders’. The projected target lies at ~97.25. Generally, we are seeing weakness out of the major currencies versus the dollar, making this not just a euro story, but a generally strong dollar story.
US Dollar Index (DXY): Daily
---Written by Paul Robinson, Market Analyst
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.