A Kilroy, or inverted head and shoulders attempt is seen in the 4H EUR/USD chart, where we see a low of 1.25 as the head, the lows around 1.26 as shoulders, and the 1.2675-1.27 area as the neckline. A break above 1.27 would be a completion of this price bottom and suggest a bullish correction ahead.
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At the Crossroad:
Price is moving above the 50-period SMA in the 4H chart, starting to show a loss of the bearish bias. The RSI however is still under 60, and is actually at a level where we should anticipate sellers, especially with price around the key resistance and psychological level of 1.27. Before a kilroy pattern is complete, the EUR/USD is still bearish.
Bullish Correction Scenario:
Now, if price does push above 1.27, we should start monitoring whether this is simply a clear-out attempt or part of a real bullish correction. A way we can check that is to wait for a pullback. If price comes back and breaks back below 1.26, EUR/USD is likely still bearish. If the market instead respects this kilroy pattern and holds above 1.26, we can anticipate a bullish correction toward 1.29, 1) a pattern breakout projection based on the height of the pattern, 2) a support/resistance area, and 3) the 200-period SMA in the 4H chart.
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For the bearish outlook, the weekly chart shows room before the next key support facts. There is the 78.6% retracement at 1.2460, and a support pivot at 1.2286. There is a rising speedline from June 2010, which might reinforce the 1.2250 area. The daily RSI is already in oversold territory. The weekly chart shows that the market is in more or less a sideways market since 2010. In this mode, oversold condition should be seen as an early sign for reversal. A bullish divergence would be a stronger signal, but even if the oversold signal is not a signal to buy, it could be a signal for sellers to start taking profit. This couple weeks of kilroy development makes sense for the profit-taking scenario.
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