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EURUSD Retests Neckline of H&S for Resistance; Coronavirus Fears Could Trigger Sell-Off


EURUSD Sell-Off Not Yet Over?

On the daily time frame, we can see that EURUSD has made its way back to the neckline of the head and shoulders pattern. While the chart pattern is considered as a bearish indicator, it is not unusual for price to retest the neckline even after it has been broken. You will also notice that EURUSD stopped short of rallying past the falling trend line (from connecting the highs of December 31 and January 16). Yesterday’s bearish candlestick, brought about by positive US data, could mean that the sell-off on EURUSD would continue to 1.0990.

For the first time since August 2019, manufacturing activity in the US grew. The report for January printed at 50.9. This was higher than the 50.0 baseline reading which indicates expansion and the forecast which was at 48.5. Consequently, the data triggered a demand for the US dollar.

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Trend Line Support Eyed

On the other hand, a closer look at the hourly time frame shows a more bullish trade set up. By connecting the lows of January 29, January 31, and February 3, we can see that there is trend line support at 1.1045. This price also coincides with the 61.8% Fib level when you draw the Fibonacci retracement tool from the low of January 31 to its intraday high. Reversal candlesticks around this price could mean that there are still enough buyers in the market. They could suggest that EURUSD may soon rally to 1.1100.

On the fundamental side of this set-up, market sentiment will need to improve. The drop on EURUSD has been driven by fears surrounding the coronavirus outbreak. According to the latest numbers, confirmed cases are now up at 20,624 and the death toll is at 427. News that the spread of the virus is being contained could ease risk aversion even more and help EURUSD trade above trend line support.