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Short

Potential short reversal with H&S on EURAUD

FX:EURAUD   Euro Fx/Australian Dollar
For next week, I'm looking at a short-term play on EURAUD             , which is showing a nice head and shoulders chart pattern on the 1H chart.

Technically, the pair has been in an overextended uptrend and is now clearly showing signs of slowing down. We could first notice the RSI divergence, which developed into a H&S pattern. Only the neckline still needs to break on a good momentum candle for me to be convinced to take a position. I've drawn a line for the neckline and have price alerts below that line in order for me to get notified once the price starts to move.

When you zoom out, you can see that the pair is currently also at a longer-term strong resistance level (indicated by the larger blue rectangle on top), created by multiple swing highs and demand spikes in the previous months. It has been a long time since the price has revisited this area, so a reversal is definitely possible.

This is as textbook as head and shoulders reversals come. Potential risks are the French election tomorrow, which might cause a rally in euro             pairs. However, I believe that much of the bullishness of the euro             is already priced in and euro             bulls might run out of steam on the actual results of the election, only to give way to shorts who might be stepping in.

This and other setups are described on my website, where you can find my weekly forex outlook.

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