Lots of chatter in the comments section today regarding a potential head and shoulders top playing out in EUR/USD. To form a right shoulder, ideally rallies should stall in the 1.4030 area or lower.
Let’s think about why head and shoulders form and are so often turning points. In an uptrend, like in EUR/USD, you get a rally that stalls , retraces a bit before breaking the initial trend high and putting in a higher high. From there you get a selloff as traders take profits. Dip buyers give the uptrend one last gasp, but ultimately fail, sending the market sharply lower as entrenched longs realize the a a top is in place an a sustained selloff is likely to unfold.
If we consolidate between 1.3775 and 1.4030, we should eventually break lower. It is a process that should take several days to play out.
