EUR/USD Forms A Head & Shoulders Pattern

The EUR/USD registered rising volume to the downside again, showing there is more interest on the sell-side these days.  The currency pair managed to bounce off our 1^st tier downtrend line, and is presently hovering just above 1.40 while knocking at our 2^nd tier uptrend line.  We notice a head a shoulders pattern forming, with yesterday’s highs possibly serving as the peak of the right shoulder.  Therefore, our 1^st tier uptrend line takes on greater responsibility since it forms the neckline of the pattern.

If the neckline breaks, we could witness accelerated losses to the downside.  As for the upside, the 2^nd tier downtrend line appears to present the most formidable obstacle to a reactivation of the uptrend.  Unfortunately for bulls, the 2^nd tier downtrend line hangs far in the distance, meaning we would likely see quite a bit of consolidation before a collision.

Speaking of collisions, if the EUR/USD continues to gravitate around our 2^nd tier uptrend line, the inflection point of our 2^nd tier uptrend and downtrend lines could serve as a breakout point.  Once again, we are speaking of the distant future.  As for now, the currency pair is exhibiting inconsistent behavior as the S&P inches up slowly.  It seems the EUR/USD may remain within a wide trading zone until either key resistances or supports are broken.  While there is a near-term downtrend tendency in the currency pair, the medium-term uptrend has much more foundation at this time.

The EU will release its industrial production number Friday.  Since both German and French industrial production releases were well below analyst expectations this week, we wouldn’t be surprised to see a similar showing in the EU’s number.  Hence, investors probably won’t react too strongly if the data misses expectations.

That being said, the data from the EU continues to come in mixed, resulting in a relative weakness in the Euro.  Losses accelerated in the EUR/GBP as we anticipated, and the downturn in this currency pair should carry on as long as Britain’s economic data outperforms the EU’s.

Resistances: 1.4105, 1.4139, 1.4185, 1.4220, 1.4249

Supports: 1.4056, 1.4020, 1.3964, 1.3921, 1.3862.

Psychological: 1.40, 1.45

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