EURUSD head & shoulder, sloping channel patterns signal weakness | October 22, 2018

EURUSD 0.31% forms head and shoulder pattern with head at 1.2555, left shoulder at 1.2092 and right shoulder at 1.1815 levels, consequently, prices are restrained below 7&21-DMAs (refer daily chart ).

Stiff resistance is seen at 1.1751 levels, shooting stars and hanging man pop-up at this juncture (refer rectangular area).

As per our long-term analysis, the major trend has been sliding through sloping channel (refer monthly chart), where the shooting star pattern pops-up exactly at channel resistance, ever since then you could make out bears have shown their effects, steep slumps have gone below EMA levels and retraced more than 50% Fibonacci levels of January 2018 highs (i.e. 1.2612) and January 2017 lows (i.e. 1.0371 levels).

You could easily observe, as and when such patterns pop up at the stiff resistance levels, failure swings have taken the downtrend upto channel support.

For now, the major trend is stuck between 38.2% & 50% Fibonacci levels. The current price still remains below 21-EMAs despite ongoing rallies as both leading oscillators signal bearish momentum, in a medium-run, bears are likely to extend 1-year lows, and most likely to retrace 61.8% Fibonacci levels.

Overall, we could foresee more slumps on cards as both leading oscillators ( RSI and stochastic curves) and both trend indicators (DMAs & MACD ) have been signaling intensified bearish momentum and downtrend continuation respectively.

At spot reference: 1.1536 levels, contemplating above technical rationale, one can execute tunnel spread options strategy. Such exotic option with upper strikes at 1.1585 and lower strikes at 1.1432 levels have been unbiased strategy but to favor slightly the bearish sentiments.

Alternatively, on hedging grounds, one can also initiate shorts in futures contracts of mid-month tenors with a view to arresting bearish risks.

Currency Strength Index: FxWirePro's hourly EUR spot index is inching towards 82 levels (which is bullish ), while hourly USD spot index was at 82 ( bullish ) while articulating (at 06:32 GMT             ).