EURUSD Potential Reversal (May 13, 2015)
EURUSD could be in for a potential reversal from its recent uptrend, as price is creating a head and shoulders pattern on its 1-hour time frame.
The pair is still forming the right shoulder and is still a few pips away from testing the neckline support at the 1.1100 major psychological level.
A break below 1.1100 might confirm the potential downtrend, which might last by around 300 pips or the same height as the chart pattern. This could take the pair down to the 1.0800 mark, which also lines up with an area of interest. Stochastic is still moving up from the oversold area for now though, indicating that buyers are in control of price action.
The moving averages are crossing back and forth, confirming the sideways movement and the hesitation to carry on with the previous uptrend. A downward crossover of the short-term EMA on the long-term EMA might confirm that further losses are in the cards.
Event risks for this trade setup include today’s GDP releases from the euro zone. As ECB Governor Draghi mentioned, a sustained recovery is taking hold in the region but the growth figures might not support this just yet. In addition, the risks facing the Greek debt payments might also weigh on the shared currency.
As for the US dollar, the recent NFP release was enough to restore a bit of confidence in the ongoing economic recovery. The reading came in line with expectations and brought the jobless rate down from 5.5% to 5.4% but the previous reports saw downgrades.
The release of the US retail sales data in the New York trading session could also be a big mover for this pair, as strong data could lead to more gains for the dollar while weak readings could push EURUSD back up. The headline figure is slated to show a 0.3% uptick while the core reading could show a 0.4% gain.
By Kate Curtis from Trader's Way