EUR/USD Head and Shoulders Pattern Neckline Test

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EURUSD could be in for a long-term reversal from its climb as price is forming a head and shoulders pattern on its daily time frame. The neckline support is currently being tested.

A break below this level could set off a drop that’s the same height as the chart formation or around 700 pips. The 100 SMA is starting to cross below the 200 SMA to confirm a pickup in selling pressure. Price is also below both moving averages, so these could hold as dynamic resistance moving forward.

Stochastic, however, is indicating oversold conditions or exhaustion among sellers. Turning back up would mean that buyers are taking over. RSI is also in the oversold region to signal exhaustion and a possible return in bullish pressure.

EURUSD might take cues from the ECB decision later this week, as the central bank could clarify its monetary policy plans. Recall that the ECB increased its inflation target, which would give it more reason to keep interest rates negative for much longer.

Apart from that, the end of the PEPP next year might be followed by regular asset purchases, which many might deem to be an extension of QE. The press conference by ECB head Lagarde could contain some forward guidance updates that euro traders are hoping to get. Dovish remarks could drag the shared currency further south while the lack of clarity could keep consolidation in play.

Meanwhile, the dollar has been banking on safe-haven flows as traders are increasingly concerned about the spread of the Delta variant of the COVID-19 virus. Although vaccination efforts are hitting roadblocks in some parts of the US, other economies appear to be faring worse and could be due for another set of lockdown measures in the near-term.

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