eurusd
So far in the trading month, the EURUSD did nothing. After gaining 10% against the USD in the last four months, the Euro stalls at the highs. Moreover, it retraced from the 1.19 area, albeit with little or no conviction for bears.
But the daily chart looks interesting. The pair tried twice at the 1.19. It failed spectacularly.
The failure brings into discussion the possibility of a double top formation at the 1.19 area. If that is the case, the rejection from the highs has more legs to the downside.
However, the size of the double top formation does not warrant a trade. Because the distance between the two tops is very small, the measured move is not enough for an appropriate risk-reward ratio.
But what if the EURUSD is forming a head and shoulders?
Last Friday’s NFP triggered a move higher for the USD. It gained across the board, but with little or no follow-through in the days to come.
In a way, this is a normal summer trading price action. The market overreacts on some important news, only to come back and slowly recover the lost ground. The same happened with the EURUSD.
On a way-better than expected NFP report, it broke below 1.18. However, bulls jumped in and quickly propelled the pair to the 1.18 level on Friday. Since then, all the dips towards the 1.17 were met with buying orders.
The scenario below brings into attention a possible head and shoulders pattern. During such a reversal pattern, the quickest price action happens during the head’s formation.
Such a pattern is impossible to know in advance. Only after the right shoulder’s consolidation starts, the pattern becomes obvious. However, at that point, everyone notices a head and shoulders on the daily chart. Hence, the earlier the positioning, the better.
If this is a head and shoulders in the making, the EURUSD should fall back to the left shoulder’s consolidation area. Going short with a stop-loss order at the highs and a take profit at 1.13-1.14 makes sense for a solid risk-reward ratio.
