Analysis Current 4:09 PM CST
Tomorrow we will finally have a London session that is light on news, so we may have some good technical moves. During the New York session, Building Permits for the USD will be released at 7:30 AM Central Standard Time.
Well, it looks like the head and shoulders pattern I discussed yesterday has formed up now, and it is a beaut! Its one of the most anatomically correct H&S patterns that I have seen in a while. However, the top of the right shoulder topped 10 pips below where I predicted. We bottomed today at 1.5800 which is an important psychological level. I would expect some type of retracement here at this level, most likely somewhere between 1.5873 and 1.5856. We could get this during an Asian fade, then make a continuation back to the downside where I would be watchful for a double bottom at 1.5800. As usual if we break the 1.5800 level, I will be looking for a break then retest of this level.
Today we initiated a 21/55 cross to the downside on the hourly. I would say that this is very significant. Currently, the 5/8 is still pointed down and has broken the 200 EMA. Bollinger bands are still wide open despite the time of day. MACD is still pointing down and stochastics is locked in oversold territory. Generally, if we are trending in a strong move, I will look more at MACD because of stochastics tendency to lock below the trading zone levels during major trends.
If we can break the 1.5800 level, the next area of support will be 1.5774 which is the 61.8% retracement level of the last major swing up, then 15738 which has been respected as valid S&R in the past. If we head back up, we will have to break back through the 1.5860 level, then the dynamic resistance offered by the top of the trend line we were in before the top of the H&S formed up should offer resistance.
On the hourly chart, we are basically in a ride the 5 scenario (where price stays above or below the 5 ema, this shows a strong move.) However the 5/8 is starting to lose angle and separation. It may cross back up temporarily while we respect this 1.5800 level. Since we just had a fresh cross of the 21/55 EMAs I would not be surprised at all to see price return to check in with the 21 EMA and make sure its still there before heading back down.
We also broke the weekly central pivot point today which is at 1.5830. If price can stay below this level that would be bearish according to pivot point theory.
Everything is pretty much telling me short on this pair today. However I do believe that we are in line for a retracement to that 1.5850 - 1.5870 area. I will be watching 1.5800 closely for a bounce or break and retest with continuation to the downside.