EURUSD: head and shoulders model may not work out

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On Wednesday the 1^st of November, trading on the euro/dollar pair closed down at 1.1618. The 45^th degree at 1.1607 prevented the euro from falling any further. Sellers were unable to break this level even after some strong US data and the conclusion of the FOMC’s meeting.

The Fed’s November meeting passed over us rather peacefully as there was no publication of economic projections, nor was there a press conference with Fed Chair Janet Yellen.

The key rate was maintained at 1 – 1.25%. This decision was in line with expectations, so the reaction was muted. Market participants are expecting a rate hike at the next meeting in December.

Day’s news (GMT+3):

• 09:45 Switzerland: SECO consumer climate (Q3). This news is just for show and can be ignored.
• 11:15 Switzerland: real retail sales (Sep).
• 11:50 France: Markit manufacturing PMI (Oct).
• 11:55 Germany: Markit manufacturing PMI (Oct), unemployment rate (Oct), unemployment change (Oct).
• 12:00 Eurozone: Markit manufacturing PMI (Oct).
• 12:30 UK: PMI construction (Oct).
• 15:00 UK: BoE interest rate decision, BoE asset purchase facility, monetary policy summary, BoE quarterly inflation report.
• 15:30 UK: BoE’s governor Carney speech.
• 15:30 USA: initial jobless claims (27 Oct).
• 19:20 USA: Fed’s William Dudley speech.

Fig 1. EURUSD rate on the hourly. Source: TradingView

On Wednesday, trading on the euro closed down, although the price didn’t reach the target in my forecast (1.1580). The euro stopped falling at around the 45^th degree. Sellers got some excellent momentum from 1.1657 and broke through 1.1625, which they had been chipping away at for 40 hours, before finally coming to a stop. A series of constant 30-pip price jumps significantly weakened their position. They were unable to nurture the new bearish impulse despite the strong ADP data and the positive conclusion to the Fed meeting.

Today in Asia, the rate has jumped 59 pips. The reasons for such a rapid increase are beyond me. All I know is that this morning’s growth to above 1.1600 has cast doubt on the continuation of the head and shoulders (H&S) model. If Thursday’s candlestick closes above 1.1600, we can forget about the H&S model.

Due to such uncertainty, I don’t have any predictions for today. President Trump may have caused this uncertainty. On Wednesday, it was reported by the Wall Street Journal that according to an anonymous source from the White House, Trump is inclined to nominate Jerome Powell to the post of Fed Chair. He will announce his decision at 19:00 GMT. Trump has tweeted that everyone will be impressed by his choice. A reform bill is also set to be published.

Before Trump, trader attention will be focused on the Bank of England’s MPC meeting. The repo rate is expected to be raised by 25 base points to 0.5%. If this doesn’t happen, the pound could enter freefall and drop 150 – 200 pips. The intensity of the drop will depend on the distribution of votes among the MPC. If the regulator decides on a rate hike, the pound will move up towards the 1.3355 area. The euro will follow suit.