The EURUSD has rallied off strong support levels as visible in this D1 chart. The rally has now paused and has left this currency pair with a head-and-shoulders reversal pattern. We expect this currency pair to correct back down to its support level based more on Euro weakness as the Eurozone debt contagion starts to flare up again.
MACD has confirmed the head-and-shoulders chart pattern and formed the same a head-and-shoulders pattern of its own. MACD has just completed a bullish centerline crossover which we believe is a false crossover and expect it to turn around during the correction. RSI is trading in neutral territory, but approaching overbought conditions.
We recommend a short position at 1.3200 with a potential second entry point at 1.3375. We also recommend a stop buy order at 1.3275 in order to hedge the initial short position and before adding new positions to this trade.
Traders who wish to exit this trade at a loss are advised to place their stop loss order at 1.3300. We will not use a stop loss order and execute this trade as recommended. Place your take profit level at 1.2850.
Here are the reasons why we call the EURUSD currency pair lower
- The EURUSD has formed a head-and-shoulders reversal pattern
- MACD has confirmed the head-and-shoulders reversal pattern and formed a similar pattern of its own
- Profit taking in order to realize profits as chart turns bearish
- New short positions by institutional swing traders as bearish chart pattern forms
- Eurozone debt contagion flare up again and are stronger than USD weakness