Head and Shoulders Pattern in EUR/USD

06/16/2009 12:01 am EST

Focus: FOREX

James Chen

Chief Technical Strategist, FX Solutions

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(Price on 1st pane, Slow Stochastics on 2nd pane; horizontal support/resistance levels in yellow; uptrend lines in green; downtrend lines in red; 50-period simple moving average in light blue.)

Price action on EUR/USD, a daily chart of which is shown, has formed a rough head and shoulders pattern that hints at a significantly bearish reversal potential if price is able to continue its break below the 1.3800 region.

The head and shoulders pattern is rough because the right shoulder is significantly higher than the left shoulder, while the neckline is relatively flat. In any event, a strong breakdown below the neckline with follow through should target further support in the 1.3550 price region. In the event that the head and shoulders pattern fails to complete with a strong neckline breakdown, upside resistance resides around the 1.4050 region.

By James Chen, Chief Technical Analyst, FX Solutions

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