After rebounding off the 38.2% Fib retracement, price completed the final leg of the Head and Shoulders Pattern. However, the neckline has proven to be too strong, with price bouncing higher towards 1.30 last week. After selling activities this week, we’re now back towards the neckline once more, with a potential break that could take us all the back to 1.20 with 1.25-1.27 as interim support along the way. Stochastic readings are pointing lower after forming an interim stoch peak just when the rebound off 38.2% Fib happened. Based on stoch alone, it is plausible where price may fall from here, bringing stoch line deeper into Oversold region and then bounce back higher once more when price hits 1.25 – 1.27.
Hourly Chart is slightly more bullish, with price rebounding from the rising trendline (not to be confused with the weekly neckline). Stochastic readings suggest that a short-term bull cycle may be possible, and the possibility for price to hit 1.29 will increase should the interim resistance 1.286 is broken. However, stoch readings are likely to hit Overbought when price reaches 1.29 and hence further bullish headway may be harder especially given the bearish backdrop seen via Weekly.
Fundamentally, Euro-zone is not gaining much attention recently. News headlines are mostly silent about the Euro-zone crisis despite the problem being far from resolved. A lot of the recent selling activities can be attributed to the strength of USD in the wake of higher US stocks. With US stocks continue to look strong, should Greece and other peripheral Euro-zone country re-enter the spotlight once again, the sell-off in EUR/USD may accelerate even faster, which is in line with the neckline breakout scenario as indicated via the Weekly chart.
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