THE BIG PICTURE: An important observation is that point A barely broke the high from the late nineties by just under 3% before the bears were able to take control. The basis for the current long term biases stems from that failure point. After establishing the peak at point A, the first impulse of the current downtrend broke the old 1.50 level of support in 2010 before making the 2012 lows around the 1.15 level. The culmination of the down leg at point B is apparent due to the reverse head and shoulders formation providing for a retracement which not only retested the 1.50 level from below, but also failed to hold above the 38% retracement level of the segment AB which can be an important sign of more weakness. While a combination of the 1.50 and 38% level provide enough resistance to place a retracement top at point C there is also a head and shoulders pattern complete to entice even more selling.
THE TECHNICAL STANDPOINT: Now that a retracement of the major trend is complete in the head and shoulders formation at point C there is a definable level that can be used to manage risk. Switching to the lower time frames to focus on short scenarios coupled with ignoring long signals tethers to this chart setup. A move above the neckline established just beneath point C will be one of the soonest red flags that the short are on the wrong side of the order flow. Downside targets suggest the low 1.30s to start and if the symmetry for segment AB is to allow for a measured move then that sets up for a push toward 0.70 at point D sometime before the end of the decade. This does not tie into the bearish DXY scenario since that would cause both of these pairs to rise. An inability to break below point B will give an indication that the DXY short side is prevailing and that the segment BC was the start of a new bull market.
THE TECHNICAL STANDPOINT: Now that a retracement of the major trend is complete in the head and shoulders formation at point C there is a definable level that can be used to manage risk. Switching to the lower time frames to focus on short scenarios coupled with ignoring long signals tethers to this chart setup. A move above the neckline established just beneath point C will be one of the soonest red flags that the short are on the wrong side of the order flow. Downside targets suggest the low 1.30s to start and if the symmetry for segment AB is to allow for a measured move then that sets up for a push toward 0.70 at point D sometime before the end of the decade. This does not tie into the bearish DXY scenario since that would cause both of these pairs to rise. An inability to break below point B will give an indication that the DXY short side is prevailing and that the segment BC was the start of a new bull market.
