EUR/USD Head and Shoulders Pattern

EUR/USD Head and Shoulders Pattern

After breaking below a rising range on its 1-hour time frame and making a retracement to an area of interest, EUR/USD has formed a reversal chart pattern indicating that a selloff is in the cards. A head and shoulders formation can be seen on the same time frame, which is a classic signal that a downtrend is about to start.EUR/USD Head and Shoulders Pattern

However, the EUR/USD pair has yet to make a break below the neckline of the formation, which is right around the 1.3750 minor psychological support. This could be spurred by more talks of negative deposit rates or significantly strong US economic reports. There are no major releases due from the euro zone today but the US is set to print its initial jobless claims and pending home sales data.


EUR/USD Technical Forecast

The EUR/USD head and shoulders pattern is roughly 250 pips in height, which means that the resulting breakdown could be of the same size. In this case, a break below 1.3750 could take the pair down to the 1.3500 major psychological support. Do take note though that the US dollar is also under a bit of selling pressure, as the flattening US yield curve is becoming a concern for investors.

A bounce from the current levels or an upside break from consolidation could trigger another test of the area of interest around the 1.3800 major psychological level. If this continues to hold as a ceiling, then the path of least resistance for EUR/USD is downward. On the other hand, a sustained rally above this level could mean that the rally still has legs. In that case, EUR/USD might make another attempt to test the 1.4000 major psychological handle.

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.