EURUSD bulls are on the move today. The single currency is testing the new resistance area between 1.1840 and 1.1875. These are two levels we have been keeping a close eye on since early September.
You may recall the September 25th break of ascending channel support. This was a significant development for the pair. Not only was the uptrend broken on this day, but the single currency also printed the first lower (swing) low since April.
Then on Friday, buyers found support at 1.1670. We’ve had this level on our radar since the EURUSD caught a bid here in mid-August. It was also our target following the breakdown on the 25th of September (see link above).
With the September breakdown fresh in our minds and our key levels drawn, this becomes a waiting game.
Apparently, Euro bulls are intent on pushing for a retest of the 1.1875 handle. The 1.1840 level was tested as resistance early this morning but has since broken down on a 4-hour closing basis.
A study of the daily time frame shows what could be the formation of a head and shoulders pattern. The left shoulder developed in early August while the head of the structure was carved out between August 29 and September 22.
Whether or not the pair forms the right shoulder is anyone’s guess. Furthermore, without a daily close below 1.1670, we can’t technically call it a head and shoulders pattern. Until that day comes, this isn’t much more than a talking point.
For now, I’m going to keep an eye on how price reacts to 1.1875. A bearish signal from current levels could take us back down to 1.1670 support and perhaps 1.1490.
Alternatively, a daily close (5 pm EST) above 1.1875 would (at minimum) delay the bearish scenario I just described. It would also expose the next key resistance at 1.2040.
Keep in mind that the FOMC meeting minutes are to be released today at 2 pm EST. Then on Thursday, we have PPI and U.S. unemployment claims at 8:30 am EST followed by Friday’s CPI and retail sales at the same time.
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