Head and Shoulders Pattern Keeps EUR/USD Bears in Control

Today’s technical focus is on EUR/USD, where last week ended with notable movements, specifically a sharp drop driven by a head and shoulders pattern, marked with yellow color. The neckline of this formation, highlighted in green, was decisively broken, leading to a significant bearish move. However, the drop was halted as the price found support at the lows from late November, identified with an orange horizontal support line. This level was tested twice, and the subsequent bounce created a short-term buying opportunity.

Now, the price has reversed and is challenging a key resistance—the neckline of the previously broken head and shoulders pattern. This neckline, acting as resistance, is pivotal in determining the next move.

Key Scenarios:

1. Bearish Mid-Term Outlook: As long as the price remains below the green neckline, the mid-term sentiment stays bearish, suggesting a continuation of the downtrend.
2. Bullish Reversal Potential: If the price closes a day above the green neckline, it will indicate a reversal and a potential buy signal with a target on the blue horizontal resistance.
3. Long-Term Breakout: A breakout above the blue resistance would solidify a long-term bullish sentiment, opening the path for further upward momentum.

Outlook:

• Resistance to Watch: The green neckline and the blue horizontal resistance are critical levels.
• Support to Monitor: The orange support zone remains a key level for buyers to defend.

The current situation offers opportunities for both short-term traders and long-term investors depending on the price’s reaction at these key levels. Watch closely for a daily close to gauge the next direction.

Source: https://www.axiory.com/analytics/technical-analysis/head-and-shoulders-pattern-keeps-eur-usd-bears-in