EUR/USD: Bullish Pattern Forming
The Euro to US Dollar pair has formed what could possibly be an Inverse Head and Shoulders (iH&S) pattern on the daily chart, say technical analysts at Société Générale (SocGen).
This pattern is bullish and if the pair were to break out of it higher, it would signal a continuation to the upside, potentially to as high as 1.1200.
The iH&S is formed of three troughs when the middle trough is the lowest.
The middle trough is labelled the ‘Head’ and the two troughs either side of it the ‘Shoulders’.
These patterns are often quite reliable at indicating a reversal of the trend from down to up.
The confirmation for the pattern comes from a move above the neckline drawn at the top of the troughs.
From there the exchange rate is expected to rally the same distance again (Y) as the height of the head (X).
SocGen think the neckline of the pattern on EUR/USD could be ‘tested’ after the pairs recent bullish surge following Draghi’s upbeat press conference after the ECB rate meeting on Thursday.
“EUR/USD is evolving within an inverted head-and-shoulders pattern at the lower bound of a multi-month descending channel (1.0350/1.03), with the neckline at graphical levels of 1.0810/60,” said SocGen.
The 1.0810-60 level where the neckline is situated could become a key battleground for the pair since other analysts, such as Commerzbank's Karen Jones, also consider it the tipping point for the trend to change from down to up.
“We stay negative below 1.0830. Only above 1.0830 would introduce scope to 1.0875 December high and the 200-day ma at 1.0955,” said Jones.
This chimes with Socgen’s view that, “In light of these formations, a retest of earlier highs near 1.0810/60 can’t be ruled out. This will determine a larger recovery.”
The Euro has also bee supported recently by an easing in political risk after the Dutch Nationalist party lost significant ground in polls in the run up to the Dutch General Elections on Mar 15, falling from 35% of the vote to only 22%.
