EURUSD Follow up. + the Bund, and SP500 update.

EURUSD

In the wake of the posting yesterday regarding the Head + Shoulders pattern on the EURUSD (Can be seen by clicking here), the price action proved indecisive, a test of the neckline was rejected in the morning followed by a consolidation. I still fear that this pattern may be forming a 'Failed Head + Shoulder' pattern, which would ultimately be bullish for EURUSD, though whilst it remains below the neckline at 1.2730/35 the downside is still slightly favoured. The two charts below illustrate why I feel that this risk is very real. It shows a comparison between the current short-term pattern, formed over the past month (top chart), and a Failed H+S pattern on the EURUSD Weekly chart from 2004/2005 (lower chart). The different time periods do not matter in my opinion, it is the similar elements in the make-up which I am looking at. 

(Click on charts to enlarge)

Similarities accross the 2 charts include:

• Right hand side of the patterns formed as Declining Wedge patterns.
• Right Shoulders much smaller than left Shoulders.
• Bullish Divergence following Neckline breaks for both RSI and MACD.
• A break up through the declining trendlines on RSI.
• Both made exact Fib Retracements of prior rallies. 38.2% of Weekly and 50% for Daily.

There are of course some differences, but these are on a micro level at best. - I would point out that having so many similarities does not mean the same outcome will occur, but it does in my opinion make it a good possibility.

(UPDATE : As I have been writing this, the EURUSD has rallied sharply to test and post a minor break of the Neckline).


BUND

A few weeks ago I posted that I expected some strong gains on the Bund in the wake of a breakout of a Symmetrical Triangle. (Can be seen here). The Bund achieved my target and then some. The strength and distance of this move was far greater than I anticipated. However yesterday saw the first sign that a pause and possibly some corrective action may be on the cards. Yesterday's candle saw a large Doji candle (almost a gravestone Doji); the close was almost at the same level as the open, and towards the low of the day's very large range. This was also on huge volume, certainly the largest volume on this move by far. This also occurred with daily Stochastics in an extremely overbought stance. - The chart below shows this. Note at this stage, and in the wake of such a strong rally, I do not anticipate this move being anything more than a correction.

SP500 Index

Finally, the SP500 posted a potential reversal Hammer like candle yesterday (See top chart below), what was interesting is that this occurred at the 76.4% Fib retracement and at support from the extension of the upper line on the large Q2 falling wedge pattern. On the shorter term picture (lower chart), this can be seen to have occurred with Bullish momentum divergence on the MACD indicator. As is the case with the other above potential reversal indicators above, the main trend remains in place, however this is a warning that a turn in direction may be on the cards, or at least a period of corrective consolidation. - On the SP500 there is a gap between Monday's Close and Tuesday's open from 1067.36 - 1063.00, this area is likely to prove resistance, with short-term longs likely to take profits around this level, and prospective new shorts looking to enter around here. However, if the SP500 can break and hold above this gap, then this should favour a further move higher.