1/03/2008 – EUR/USD – A close look at the EUR/USD daily chart (as displayed) shows that an inverted head-and-shoulders pattern has just formed (the neckline of which is represented on the chart by the yellow line labeled “1”). This follows closely on the heels of a right-side-up head-and-shoulders pattern (the neckline of which is represented on the chart by the yellow line labeled “2”) that formed and completed late last year. In fact, these two patterns actually share a shoulder. At this writing, price action is toying with the inverted neckline at “1”. It should be kept in mind that a head-and-shoulders pattern cannot be considered complete unless there is actually a decisive break of the neckline. Therefore, price is currently at a critical support/resistance juncture. A decisive breakout above the neckline should target strong resistance at the historical high of around 1.4960. If, however, the current neckline resistance holds, and price turns back down, the first major support on the downside resides around the most recent shoulder level in the 1.4600 region. This level, incidentally, also coincides with the 23.6% Fibonacci retracement level (the low-to-high span being measured from the low on 8/16/2007 to the historical high on 11/23/2007). Further below this, additional major support resides at the inverted head level of around 1.4300.
James Chen
Chief Technical Analyst
FX Solutions
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(Chart courtesy of FX Solutions' FX AccuCharts. Price on 1st pane, Slow Stochastics on 2nd pane; uptrend lines in green; horizontal support/resistance lines in yellow; 200-period simple moving average in light blue.)
