EURUSD's Pivotal Moment: A Failed Reversal Spells Mid-term Decline
11 August 2023
The week may be winding down, but in the world of forex, the action never truly stops. As we conclude this week's technical analysis, our spotlight falls on the EURUSD pair, a currency pair exhibiting a rich tapestry of potential moves and countermoves.
From a historical perspective, the pair has been navigating the choppy waters of a downtrend since mid-July. However, in an interesting twist, recent movements indicated a potential shift in sentiment. The pair seemed to muster some bullish momentum and delineated an inverse head-and-shoulders pattern, highlighted in a conspicuous yellow on the charts. This formation typically hints at a possible bullish reversal.
But, like many things in trading, not everything goes according to plan. The crux of the pattern, the neckline, located at the 1.105 mark, proved to be a formidable barrier. This blue-marked horizontal region isn’t just a casual resistance. It carries historical significance, having thwarted upward moves in May, April, and as far back as February.
Thursday's trading session saw a spirited attempt by the bulls to surmount this resistance, but the enthusiasm was short-lived. The failure to break above this pivotal level has quashed the budding buy signal that the inverse head and shoulders formation had hinted at.
So, where does that leave EURUSD?
The age-old adage in trading says that when a security doesn't ascend, it’s likely to descend. In the case of EURUSD, the failed bullish breakout may set the stage for a decline. A plausible target for this anticipated mid-term downtrend is the red uptrend line. This line succinctly connects the series of higher lows that the pair has been crafting over a more extended period. With a potential 200-pip move toward this area, traders may find an enticing mid-term trading opportunity looming.