By the end of last Friday’s session it looked as though the validity of this three-month inverse head and shoulders pattern on EURCAD would be called into question. Although the market was still holding above key support, Friday’s intense selling pressure certainly had buyers thinking twice to start the new week.
It all began after the pair broke free from the neckline on June 2nd, triggering an aggressive rally that lasted three days and advanced the pair 400 pips. This run provided traders a great opportunity to buy into the bullish momentum, myself included.
However the subsequent decline during Friday’s session was even more aggressive as the pair ran into key resistance at 1.4070. This area is represented by the February lows in combination with trend line resistance from March of 2014.
Needless to say this was a prime area for buyers to liquidate their positions going into the weekend, which is exactly what happened as the pair plummeted 300 pips to end the week. But the selling didn’t last long as the bulls battled back during yesterday’s session, erasing 200 of the 300 pips lost on Friday.
From here the 1.3915 level will likely come in as support, however I’m only interested in a daily close above the 1.4070 key resistance level. A break would confirm the continuation of the inverse head and shoulders pattern thus opening up the door for another push higher.
Summary: Wait for a daily close above 1.4070 and then watch for a retest as new support. Key resistance comes in at 1.4212 and 1.4340 with a measured objective of 1.4490.