EUR/USD Head-and-Shoulders Reversal or Simple Correction?

<p>EUR/USD (daily chart), as of February 14, 2013, has dropped further from its 14-month high two-weeks ago around 1.3700 resistance and its temporary recovery yesterday […]</p>

EUR/USD (daily chart), as of February 14, 2013, has dropped further from its 14-month high two-weeks ago around 1.3700 resistance and its temporary recovery yesterday up to 1.3500 resistance. Today’s substantial fall in price has brought the pair close to key support around the 1.3300 price region.

While price is still comfortably within the bounds of a strong overall uptrend extending back to the July 2012 1.2040 low, today’s breakdown has also tentatively broken down below the neckline of a potential head-and-shoulders topping pattern. This pattern has its left shoulder around the 1.3400 area high in mid-January, its head around the 1.3700 area high in early February, and its right shoulder around yesterday’s 1.3500 area high. As head-and-shoulders patterns are considered potential reversal formations, this price action hints at further possible bearishness going forward.

A strong breakdown below 1.3300 support would confirm this bearishness, with a further breakdown below the 1.3200 area placing the current bullish trend in serious risk of reversal, with an initial objective around 1.3000 support. To the upside, only a breakout above 1.3500 would place renewed confidence in a bullish trend continuation, with further upside objectives once again around 1.3700 and then potentially towards the 1.4000 resistance area.

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