EUR/USD broke out of a 4-day consolidation pattern earlier today. Whilst the direction was against bullish wishes, markets are now fully focused on the neckline of a 10-week reversal pattern.
An inverted head and shoulders on the daily chart projects an approximate target near the May 2018 low. That is, of course, if it doesn’t break down in due course. As price action has developed, we’ve had to slightly modify the neckline, but a clear break of today’s low likely invalidates the reversal all together. We wouldn’t want to get short on that signal alone as the daily structure would become ambiguous, but it would be a signal to remove it from the watchlist until a clearer trend develops.
We’ve seen an attempt to break the neckline today, but the 20-day average came to the rescue. With the 20-day average supporting and pointing higher, we’d prefer to stick will bullish setups. And, assuming we’ve seen the low of the day the 10-week reversal pattern remains in play.
Still, strong resistance likely awaits at 1.1852 as this marks an elongated, bearish outside candle. That’s not to say it can’t be overcome, but the odds of it breaking first attempt could be low. But if bulls can yield enough momentum and break above 1.1852, the upside is less obscured and until we hit 1.20.
So, for now, grab the popcorn and see how price develops around the neckline and where momentum takes us.