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EUR/USD Technical Outlook: Euro at Critical Spot on the Chart

EUR/USD Technical Outlook: Euro at Critical Spot on the Chart

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EUR/USD Technical Outlook

  • EUR/USD trading near the neck-line of H&S pattern
  • Trend lower is building a descending wedge, may or may not change outlook

EUR/USD Technical Outlook: Euro at Critical Spot on the Chart

Not long ago the EUR/USD triggered a head-and-shoulders (H&S) pattern that was under development for about a year. The formation, if it remains valid here, points to much lower levels ahead. The key here is that it doesn’t overtake the neckline and spark a larger rally.

The neckline is around the 11800 level, which lies just ahead. If price is to cross the neckline a descending wedge pattern would also trigger, which may help squeeze the Euro towards an invalidation of the broader head-and-shoulders pattern. A close above the July high at 11908 is needed to do that.

This is of course just a scenario at this time worth watching, the burden of proof indeed still lies with buyers. At this juncture, the pattern is in play and the trend is lower. A turn down here would help further along the sequence of lower lows and lower highs.

A drop below 11663 will create a new low in the sequence, keeping the path of least resistance clearly lower. The next near-term level of support to watch is the low of the head-and-shoulders pattern near the 11600 line.

If the H&S formation reaches the longer-term target based on the size of the pattern (measured move target), EUR/USD has potential to fall to around 11000 This target is derived by taking the height of the pattern from the head to the neckline and subtracting that distance from where the neckline was broken. The measured move target also aligns well with a 20+ year trend-line.

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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.