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Update on the Euro Trade

As I discussed on May 14th, I thought the Euro might perfect a Head and Shoulders pattern, projecting further downside for prices in the near term.

May 14th

My initial target (#4 on the chart above) was reached in short order (see chart below). My hope was that the next move would be sharply lower, perfecting a break of the head and shoulders formation, and projecting much lower levels in the days or weeks to come.

The alternative that I suggested was that the Euro might treat the "neckline" of the Head and Shoulders as support and rally higher from there. Though it is too early to rule out a break in the head and shoulders pattern (a break below $1.28 is the level to watch on the downside), it looks like the Euro could be using the neckline as support for now.

We will be watching the Euro closely for a break of $1.31-$1.32 to the upside and $1.28 on the downside to have a better idea of which way it is headed over the medium-term. Longer-term, I am happy to maintain my core short position, expecting significant downside in the Euro eventually.

Disclosure: Currency trading involves a high degree of leverage and risk. Please do not participate in currency trades unless you employ strict control of risk and can afford to lose your entire investment.

Positions: Short the Euro, Short the Yen.

Written By: Joshua Ungerecht
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Currencies, Currency Trading, EUR/USD, Euro, Head and Shoulder's neckline, Head and Shoulders Formation