EUR/USD is described as remaining in a bear trend and potentially developing a head and shoulders pattern over the past year. The focus is on the low 1.1300 area, where the neck line aligns with Fibonacci support and the 100-day moving average; a break below that level is presented as an important sell signal if it occurs this week. A video accompanies the trade idea.
Jason Sen of DayTradeIdeas.co.uk is identified as the author. His background includes starting in the options pits on the LIFFE trading floor in 1987 at age 19, where he made markets on his own account, and moving to day trading on computer screens after the trading floor closed in 2001.
Technical Analysis: Bear Trend and Key Support Levels
We are closely watching the EUR/USD pair as it continues its long-term bearish momentum, potentially carving out a massive head-and-shoulders pattern over the last twelve months. Our focus is locked on the crucial 1.1300 zone, where the pattern’s neckline, key Fibonacci support, and the 100-day moving average all converge. A clean break below this support level in the coming weeks will trigger a major sell signal that derivative traders should be prepared to exploit.
Fundamental Backdrop and Trading Strategy
This technical setup comes amid shifting macroeconomic factors, with the European Central Bank recently adjusting to slowing eurozone growth as manufacturing PMI figures hover sluggishly around 45.8. Meanwhile, relatively steady economic data from the United States has kept the dollar resilient, putting downward pressure on the currency pair. This fundamental divergence makes a breakdown below the 1.1300 handle highly plausible as we head into August.
Looking at historical trends, similar head-and-shoulders patterns in EUR/USD, like the notable breakdown in late 2021, have historically triggered rapid declines of 4% to 6% in the subsequent weeks. Current options market data reflects this growing bearish outlook, with three-month risk reversals showing a steady bias toward euro puts over calls. We suggest that derivative traders look to buy out-of-the-money put options or establish short futures positions to capitalize on this potential momentum.
If the pair manages to hold above 1.1300, we should remain patient and avoid premature entries until a clear direction is established. However, a confirmed daily close below this key level should serve as the trigger to aggressively build short exposure. We recommend placing stop-losses just above the 100-day moving average to protect capital against any sudden, volatile whipsaws.
