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Great Graphic: Is that a Potential Head and Shoulders Pattern in the Euro?

Summary

 

The euro is breaking out to the upside.

The measuring objective is near $1.2150, which is near the 50% retracement of the euro’s drop from the mid-2014 high.

Key caveat: It is about the upper Bollinger Band and rate differentials make it the most expensive to hold since the late 1990s.

 

The head and shoulders pattern in technical analysis is most commonly seen as a reversal pattern. As this Great Graphic (created on Bloomberg) illustrates, the price action appears to have traced out such a pattern and today’s advance break the neckline.

It is not ideal. It is not coming at the end of a large downmove, though the euro has pulled back from the two-year high set in September. Also, the measuring objective would is near $1.2150, which is above that September high. However, we note that it is near the 50% retracement objective of the euro’s decline from the mid-2014 high near $1.40. The weekly MACDs and Slow Stochastics are about to cross higher.

There are a couple notes of caution. First, the euro has shot through the upper Bollinger Band (~$1.1900). It gains over the past two sessions appear to be taking place in thin activity. Second, next week, there are several key events, including the likely Senate vote on its tax reform bill, Powell’s confirmation hearings, and the release of the Fed’s targeted inflation measure, the October core PCE deflator, which is expect to rise. Third, the US premium over Germany on two-years, makes it the most expensive to hold euro against the dollar since the late 1990s.

EUR/BGN Currency

EUR/BGN Currency

- Click to enlarge

 

Marc Chandler
He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.
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