EUR/USD: H&S Breakout Foiled

Isn’t EUR/USD infuriating? Price finally traded below the neckline of the potential Head and Shoulders Pattern this week, only to see price rallying up towards the 38.2% Fib and 1.315 round number confluence yesterday. The rally invalidated the bearish breakout scenario and put prices right back in between neckline/38.2% Fib, which is helpful to neither technical bulls seeking a rally beyond 1.35, nor bears wishing to see price trading back towards 1.20. Trading within the right shoulder range does not give us any new insights on possible direction, and with today being the final day of the trading week, we may not be able to see price making any significant moves especially with news event docket being lighter than the previous week.

To be fair it is not really the bears’ fault. Prices did managed to push lower, trading below 1.28 at one point this week. If not for Ben Bernanke’s continued QE talk on Wednesday, it is highly possible that price may have continued further lower especially since 1.29 resistance has been affirmed on Tuesday. However, Bernanke’s support for QE3 did happen, resulting in strong USD weakness, sending EUR/USD back up once more. There are some other positive EUR news yesterday, with IMF affirming that Greece will not be facing any funding gap before August 2014, however that in itself did not push EUR/USD significantly higher, with EUR/USD hitting 1.312 towards the end of US session, a pale shadow of the post Bernanke rally achievement of 1.32. From here we can learn that EUR/USD is still being moved by USD direction more so than EUR. Hence traders will do well to discern the correlation between USD and US stocks considering that S&P 500 is current on record closing high, and we could certainly see Stock prices and hence USD moving strongly in the coming weeks.

Weekly Chart
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Stochastic readings are currently heading lower, but the gradient of stoch line has smoothened significantly. This suggest that overall pressure remains to the downside, and should price remain under 1.315/ 38.2% Fib, a move back towards neckline will be possible. Nonetheless, given the fact that we’ve failed to do so this week, it may be difficult for bears to gain bearish momentum to push price below neckline quickly, and we may see prices trading sideways for an extended time until the break of the neckline, provided that 1.315 remains firm that is.

Hourly Chart
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Short-term pressure remains on the downside as well, with stoch and price action both showing that a move towards 1.30 is possible. Should 1.30 is broken, we could see a a return of bearish acceleration back towards 1.29 resistance turned support. Trading towards 1.275 may be harder considering that Stoch readings will most likely be Oversold if the move happened, hence increasing the likelihood of the 1.275 – 1.29 consolidation zone holding up, which is yet another hurdle for long-term bears to cross in order for the H&S neckline breakout to materialize.

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