EURUSD on the Verge of Catalyzing a Reversal Pattern

[B]My picks:[/B] Pending EURUSD Breakdown (Short)
[B]Expertise:[/B] Combining Money Management with Fundamental and Technical Analysis
[B]Average Time Frame of Trades:[/B] 3 days - 1 week

Risk appetite was my top priority last week. Either sentiment would falter and encourage congestion to develop into reversals or risk appetite would find a definitive direction (whether it be bullish or bearish). I was prepared for either scenario; but following technicals would help me to define a position that had a better opportunity for follow through. As such, my dalliances into speculating on risk appetite would be fortified by clear levels that can define direction even if momentum is lacking. Taking this approach with GBPCHF, my breakout scenario would indeed find entry. While the intial break of a trendline that connected Oct 2007, Aug 2008, Sept 2008 and May 2009 highs would not immediate produce a shift in drive, we have seen that the confluence of the 200-day simple moving average and 38.2% Fib of a long-term bear wave have furthered the bullish convictions of the pair. Entry was defined with a close above 1.7650 last Wednesday. A first target of 200 points has already been taken; and now the second half of the position - set much higher - is free to develop with a stop set to breakeven.

Turning my attentions to this week, technicals across the market suggest we may be in store for a clear shift in sentiment. However, speculating on risk appetite, momentum and direction is a difficult mix - especially with so few key indicators or events promising to guide the market. Instead, I will follow technicals on a very clear EURUSD setup. Since late-April, this pair has been developing a very prominent head-and-shoulders formation. From April to early June, we have seen a more than 1,400 point advance that has been capped by a frequented, falling trendline starting back on August. The initial hold on June 3rd at 1.4335 is the beginnings of a reversal; but we need to find momentum to the downside to truly call it as such. Thanks to shoulders on May 22nd and June 11th, we now have a clear setup for entry. This morning, we have broken below a rising trendline from April 29th and now have targeted the neckline - coincidently falling at the psychologically important 1.38 level. I will look for a medium time frame close below this level (60min to 240min) for entry confirmation. My stop will be defined by short-term technicals; but if it is necessarily large, I will adjust position size to minimize notional risk. My first target will equal risk and the second will be set down around 1.32-1.3350.