EUR/USD Potential Trend Reversal

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EUR/USD Potential Trend Reversal

On its 1-hour time frame, EUR/USD is moving inside a rising channel, indicating that the pair is in the middle of an uptrend. It recently tested resistance at the top of the channel, which is very close to the 1.4000 major psychological level.

Technical indicators are hinting at a potential selloff though, as the pair made three tests of resistance and failed to make an upside break. This could be indicative of weakening buying pressure and that sellers are determined to keep the pair’s rallies in check.

A closer look at the recent tests of resistance reveals that a head and shoulders chart pattern may be forming. The right shoulder has yet to be formed, which could occur if the pair sells off to the neckline support at the 1.3850 minor psychological level. From there, a break from the neckline could mean that the uptrend is over and that a downtrend is set to start.

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EUR/USD Technical Forecast

Before that happens though, EUR/USD also has to break below the channel support at the 1.3800 major psychological level. This is a key area of interest, which has shifted from being either a support or resistance zone, which proves that buyers and sellers are watching this area very closely. A strong break below this level, which could be sparked by a risk-off market event, could push EUR/USD back to the next support region around 1.3400 while a strong bounce could trigger a test of 1.4000 once more.

Stochastic is indicating overbought conditions with a bit of selling pressure building. This supports the likelihood of a selloff taking place, but a lot hinges on the Crimea vote. Weekend gaps could still form, similar to what happened the other week, and it would take strong market catalysts for the trend to continue or reverse.

To contact the reporter of the story: Jonathan Millet at john@forexminute.com