EURUSD—Inverse Head and Shoulders Neckline Broken

04/15/2015 9:00 am EST

Focus: FOREX

From a technical standpoint, OANDA market analyst Craig Erlam outlines how an inverse head and shoulders pattern was completed thanks to the release of weaker US retail sales on Tuesday and how this helped this currency pair break above the neckline before running into resistance.

The possible inverse head and shoulders I highlighted on Monday was completed Tuesday afternoon thanks to the release of a weaker US retail sales report.

Coming in at 0.9%—below expectations of 1.1%—the retail sales figure prompted widespread dollar weakness, helping EUR/USD to break above the neckline before running into initial resistance around 1.6035.

Aside from being a previous level of support and resistance, making it a logical level for the pair to take an initial breather, it is also consistent with the break of the inverse head and shoulders.

The size of the move from the second shoulder to the neckline projected above brings us to pretty much the exact same level. This is generally viewed as the conservative target when breakouts occur with inverse head and shoulders.

The more aggressive target tends to come from the distance between the head and the neckline being projected above the neckline, which would be around 1.0675. This roughly coincides with Friday’s high and therefore makes it another logical level of resistance.

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By Craig Erlam,Market Analyst, OANDA

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