Don't Get Excited When EURUSD Retests The Neckline Of The H & S!
Updated
Well the .1.14500 Crucial support was surely broken last week with a strong bearish candle evident on the weekly chart, thus completing the head and shoulders pattern in the process!. Well so as the classic rule of head and shoulders would say " enter short or long when the price retests the neckline of the completed pattern". This statement holds true to some extent but in this case just below the neckline there is a crucial resistance that might turn into support when the price retests the neckline of the head and shoulders!
Pay attention to the 1.14500 level here!. So the first vital question that comes into mind is that : Will the EURUSD actually retest the neckline and when might it do so? To answer this have a look at the 4 hour chart on the image below
As you can see a classical reverse head and shoulder pattern is on the verge of completion and should the neckline break the price will head to the resistance of 1.14500 level en route to the neckline of the weekly head and shoulders (1.1600 level). And so NOW TO ADDRESS THE BIG QUESTION ON EVERYONE'S MIND: WHAT TO DO WHEN THE PRICE COMES NEAR OR RETESTS THE NECKLINE OF THE WEEKLY HEAD AND SHOULDERS? Please keep continue reading below i will try to make it less boring as possible but i know that many traders are looking for more in-depth analysis before trading this pair.
SCENARIO ONE: WHAT IF THE PRICE NEVER RETEST THE NECKLINE AND BOUNCES OF THE 1.14500 RESISTANCE
Its not every time the neckline gets retested sometimes the price might just retrace slightly and resume its downtrend! In our personalized case however there is a crucial weekly/monthly resistance present at 1.14500 level and if the price happens to form any reversal pattern or candlestick on the weekly or daily chart, then an entry can be executed with the SL Above the right shoulder and the TP target set at 1.06 level. Overall the risk reward ratio would be beneficial too in this case roughly around 1:4.
SCENARIO TWO: WHEN THE WEEKLY PRICE RETESTS THE NECKLINE AND FORMS A HIGH TEST INVERTED HAMMER
Alright, so the price has broken through the 1.14500 resistance level and is now testing the neckline, so what do you? most traders will be naive just to enter short straight away at this point thus neglecting the support that lies beneath the neckline (1.14500). In my personal opinion this is a risky move it might catch many traders off guard. If the price happens to test the neckline then its best to wait for a reversal candlestick to appear on the weekly chart! such as in a inverted hammer of which the price tests neckline and quickly rejects it and closes below the 1.14500 level. have a look at the image below to see the past data on this pair
So next week we will be looking for high test candle like these which would confirm that the downtrend will resume. I can NOT stress this enough that the weekly price must test the neckline and close below the 1.14500 in order for this scenario to be valid. Once this happens we can enter a short trade and the risk to reward ratio would be nice as well
SCENARIO THREE: PRICE REJECTS THE NECKLINE BUT DOES NOT CLOSE BELOW THE 1.14500 LEVEL
Okay, so the price is testing the neckline on the weekly chart but the candle closed in between the neckline and the 1.14500 level so what to do this case? in my opinion it would be wise enough to wait for a break and close below the 1.14500 level on weekly chart thus confirming the support has indeed broken and price is headed down. Although it might reduce our risk to reward ratio from a possible 1:4 to 1:3 its still a good opportunity
Either one of the three mentioned scenario would happen next week or the coming week which should give us enough confirmation to go short on this pair!
FUNDAMENTAL ANALYSIS ON WHY WILL THE USD GET STRONG
The source of the below article: uk.investing.com/analysis/euro-how-much-further-can-it-fall-200203073
By Kathy Lien, Managing Director of FX Strategy for BK Asset Management.
After a one day reprieve, investors returned to buying U.S. dollars. The greenback is on a tear, rising to fresh 1-year highs against euro, sterling, the Australian and New Zealand dollars. The commodity currencies extended even further with AUD/USD falling to its lowest level since January 2017 while NZD/USD to its lowest since February 2016. The gains in the greenback can’t be entirely attributed to risk aversion because U.S. stocks rose today and Treasury yields moved slightly higher. U.S. import and export prices were underwhelming and data from Europe was decent. The Turkish Lira is also off its lows, so the stress on emerging markets did not intensify, leading everyone to wonder what’s behind today’s move.
The answer is lies in the bigger story. Looking across the globe, there are no shortages of uncertainties that could easily jeopardize a currency – in Europe, we’ve seen no meaningful policy changes in Turkey, European banks are still at risk and the odds of a no-deal Brexit is growing. Even if the losses for banks are minimal, the hit to investor and business confidence could be significant. In Asia, Chinese consumer spending and industrial production is weakening, posing a greater risk to countries in the region. All of this explains why investors were reluctant to pick bottoms or take on risk. When no buyers could be found, the sellers stepped in ahead of Wednesday’s U.S. retail sales report. With wages on the rise and the labor market growing, consumer spending should be strong. Not only is the U.S. economy more stable but it is doing better than everyone else. Recent developments make it less likely for the other central banks to raise interest rates while the Fed needs a very good reason to pass on a rate hike next month.
The euro is the weakest currency today because investors are worried that Europe is ground zero for the next emerging market crisis. These concerns overshadowed improvements in Eurozone data. Second-quarter GDP growth in the Eurozone beat expectations, with the economy expanding 0.4% between the months of April and June. Unfortunately Germany was the only country where the pace of growth accelerated – all other Eurozone nations experienced steady to slightly weaker growth in Q2. Investor confidence improved significantly according to the ZEW survey but the data was taken before the Turkish Lira blew up. Between trade tensions, slower Chinese growth and Turkey’s economic crisis, the outlook for the euro is grim. If EUR/USD breaks 1.13 the next stop will be 1.12.
Sterling gave up earlier gains to end the day near its 1.2705 low. This is a big week for the U.K. but risk appetite, market sentiment and Brexit headlines continues to have a greater impact on the currency than data. Tuesday morning’s employment report should have been good enough to keep sterling supported but it didn’t. Although wage growth slowed slightly, the unemployment rate improved and jobless claims increased less than expected. Consumer prices are due for release Wednesday. Of all of this week’s reports, inflation has the greatest chance of helping the pound because price pressures was the main reason why the Bank of England raised interest rates this month. Yet with the selling pressure in GBP is so strong, external risks has and could prevent the currency from rallying. The sell-off in GBP gained momentum after the U.K.’s foreign secretary said the risk of a no-deal Brexit have been growing but GBP/USD collapsed on the back of the rising dollar and not UK factors.
The performance of the commodity currencies was less consistent. While the Australian dollar had been under pressure throughout the European and NY sessions, the New Zealand dollar turned later in the day. The Canadian dollar, on the other hand, outperformed the greenback. The loonie was the only currency that bested the buck. Its resilience was initially attributed to rising oil prices but when the dollar turned oil prices reversed as well but the loonie held strong. As for AUD and NZD, it is difficult for these currencies to do well with the Chinese economy slowing. China reported softer industrial production and retail sales data Monday night.
END-----------OF------------------ARTICLE
Overall this is a very rare high probability set up and provided if one of the scenarios are met the odds will be hugely in our favor. so watch out for any updates on the signals on this thread. i hope this information is useful to many beginners and experts too. Thank you and cheers have a great weekend
Pay attention to the 1.14500 level here!. So the first vital question that comes into mind is that : Will the EURUSD actually retest the neckline and when might it do so? To answer this have a look at the 4 hour chart on the image below
As you can see a classical reverse head and shoulder pattern is on the verge of completion and should the neckline break the price will head to the resistance of 1.14500 level en route to the neckline of the weekly head and shoulders (1.1600 level). And so NOW TO ADDRESS THE BIG QUESTION ON EVERYONE'S MIND: WHAT TO DO WHEN THE PRICE COMES NEAR OR RETESTS THE NECKLINE OF THE WEEKLY HEAD AND SHOULDERS? Please keep continue reading below i will try to make it less boring as possible but i know that many traders are looking for more in-depth analysis before trading this pair.
SCENARIO ONE: WHAT IF THE PRICE NEVER RETEST THE NECKLINE AND BOUNCES OF THE 1.14500 RESISTANCE
Its not every time the neckline gets retested sometimes the price might just retrace slightly and resume its downtrend! In our personalized case however there is a crucial weekly/monthly resistance present at 1.14500 level and if the price happens to form any reversal pattern or candlestick on the weekly or daily chart, then an entry can be executed with the SL Above the right shoulder and the TP target set at 1.06 level. Overall the risk reward ratio would be beneficial too in this case roughly around 1:4.
SCENARIO TWO: WHEN THE WEEKLY PRICE RETESTS THE NECKLINE AND FORMS A HIGH TEST INVERTED HAMMER
Alright, so the price has broken through the 1.14500 resistance level and is now testing the neckline, so what do you? most traders will be naive just to enter short straight away at this point thus neglecting the support that lies beneath the neckline (1.14500). In my personal opinion this is a risky move it might catch many traders off guard. If the price happens to test the neckline then its best to wait for a reversal candlestick to appear on the weekly chart! such as in a inverted hammer of which the price tests neckline and quickly rejects it and closes below the 1.14500 level. have a look at the image below to see the past data on this pair
So next week we will be looking for high test candle like these which would confirm that the downtrend will resume. I can NOT stress this enough that the weekly price must test the neckline and close below the 1.14500 in order for this scenario to be valid. Once this happens we can enter a short trade and the risk to reward ratio would be nice as well
SCENARIO THREE: PRICE REJECTS THE NECKLINE BUT DOES NOT CLOSE BELOW THE 1.14500 LEVEL
Okay, so the price is testing the neckline on the weekly chart but the candle closed in between the neckline and the 1.14500 level so what to do this case? in my opinion it would be wise enough to wait for a break and close below the 1.14500 level on weekly chart thus confirming the support has indeed broken and price is headed down. Although it might reduce our risk to reward ratio from a possible 1:4 to 1:3 its still a good opportunity
Either one of the three mentioned scenario would happen next week or the coming week which should give us enough confirmation to go short on this pair!
FUNDAMENTAL ANALYSIS ON WHY WILL THE USD GET STRONG
The source of the below article: uk.investing.com/analysis/euro-how-much-further-can-it-fall-200203073
By Kathy Lien, Managing Director of FX Strategy for BK Asset Management.
After a one day reprieve, investors returned to buying U.S. dollars. The greenback is on a tear, rising to fresh 1-year highs against euro, sterling, the Australian and New Zealand dollars. The commodity currencies extended even further with AUD/USD falling to its lowest level since January 2017 while NZD/USD to its lowest since February 2016. The gains in the greenback can’t be entirely attributed to risk aversion because U.S. stocks rose today and Treasury yields moved slightly higher. U.S. import and export prices were underwhelming and data from Europe was decent. The Turkish Lira is also off its lows, so the stress on emerging markets did not intensify, leading everyone to wonder what’s behind today’s move.
The answer is lies in the bigger story. Looking across the globe, there are no shortages of uncertainties that could easily jeopardize a currency – in Europe, we’ve seen no meaningful policy changes in Turkey, European banks are still at risk and the odds of a no-deal Brexit is growing. Even if the losses for banks are minimal, the hit to investor and business confidence could be significant. In Asia, Chinese consumer spending and industrial production is weakening, posing a greater risk to countries in the region. All of this explains why investors were reluctant to pick bottoms or take on risk. When no buyers could be found, the sellers stepped in ahead of Wednesday’s U.S. retail sales report. With wages on the rise and the labor market growing, consumer spending should be strong. Not only is the U.S. economy more stable but it is doing better than everyone else. Recent developments make it less likely for the other central banks to raise interest rates while the Fed needs a very good reason to pass on a rate hike next month.
The euro is the weakest currency today because investors are worried that Europe is ground zero for the next emerging market crisis. These concerns overshadowed improvements in Eurozone data. Second-quarter GDP growth in the Eurozone beat expectations, with the economy expanding 0.4% between the months of April and June. Unfortunately Germany was the only country where the pace of growth accelerated – all other Eurozone nations experienced steady to slightly weaker growth in Q2. Investor confidence improved significantly according to the ZEW survey but the data was taken before the Turkish Lira blew up. Between trade tensions, slower Chinese growth and Turkey’s economic crisis, the outlook for the euro is grim. If EUR/USD breaks 1.13 the next stop will be 1.12.
Sterling gave up earlier gains to end the day near its 1.2705 low. This is a big week for the U.K. but risk appetite, market sentiment and Brexit headlines continues to have a greater impact on the currency than data. Tuesday morning’s employment report should have been good enough to keep sterling supported but it didn’t. Although wage growth slowed slightly, the unemployment rate improved and jobless claims increased less than expected. Consumer prices are due for release Wednesday. Of all of this week’s reports, inflation has the greatest chance of helping the pound because price pressures was the main reason why the Bank of England raised interest rates this month. Yet with the selling pressure in GBP is so strong, external risks has and could prevent the currency from rallying. The sell-off in GBP gained momentum after the U.K.’s foreign secretary said the risk of a no-deal Brexit have been growing but GBP/USD collapsed on the back of the rising dollar and not UK factors.
The performance of the commodity currencies was less consistent. While the Australian dollar had been under pressure throughout the European and NY sessions, the New Zealand dollar turned later in the day. The Canadian dollar, on the other hand, outperformed the greenback. The loonie was the only currency that bested the buck. Its resilience was initially attributed to rising oil prices but when the dollar turned oil prices reversed as well but the loonie held strong. As for AUD and NZD, it is difficult for these currencies to do well with the Chinese economy slowing. China reported softer industrial production and retail sales data Monday night.
END-----------OF------------------ARTICLE
Overall this is a very rare high probability set up and provided if one of the scenarios are met the odds will be hugely in our favor. so watch out for any updates on the signals on this thread. i hope this information is useful to many beginners and experts too. Thank you and cheers have a great weekend
Note
PLEASE NEGLECT THE IMAGE IN SCENARIO NUMBER TWO AND REFER TO THIS IMAGE
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