EUR/USD traded lower on Wednesday, after hitting resistance fractionally below the 1.1300 barrier. Overall, the pair looks to have formed a complex head and shoulders formation, but until it gets completed, we prefer to stay sidelined. We would start examining the case of a bearish reversal upon a break below 1.1215.
Such a move would also drive the rate below the neckline of the H&S pattern and may encourage the bears to dive towards the 1.1148 zone, defined as a support by the inside swing high of May 29th. The rate could rebound after testing that territory, but if the recovery stays limited below or near the neckline, we would see decent chances for the bears to jump back into the action and push for another leg south. They could even overcome the 1.1148 barrier, something that may extend the decline towards the 1.1085 level, marked by an intraday swing low formed on May 29th.
Turning our gaze to our short-term oscillators, we see that the RSI turned down again after hitting resistance near its 50 line, while the MACD, already negative has just touched its toe below its trigger line. Both indicators detect negative momentum and increase the chances for this pair to drift further south. However, as we already noted, we prefer to wait for a dip below 1.1215 before we get confident on the downside.
On the upside, a clear rebound above 1.1300 would keep us sidelined for a while more, although we may see a decent recovery within the boundaries of the currently formed consolidative pattern. The bulls may initially aim for yesterday’s high at 1.1353, the break of which may allow advances towards the peak of June 10th, at 1.1423.
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