The EURUSD pair had a bearish close last Friday. It completed an evening star formation on the daily timeframe, a pattern that has a target in the 1.1450 area.
The Euro traded with a bullish tone since last April. After it broke higher from the 1.08 area, it did not stop until 1.1940. Moreover, the rising trend was so aggressive that the pair did not form a single reversal pattern. Not anymore.
Last Friday’s NFP Boosted the USD
One of the reasons why the EURUSD closed with a bearish tone last week was the NFP report. It came out better than expectations, fueling hopes of a faster recovery in the United States.
The USD caught a bid across the board, with the EURUSD being just one of the pairs that dropped. Other FX majors, like the AUDUSD, for example, fell even faster.
We can also talk about profit-taking in the case of the EURUSD. After a run higher of over ten big figures, profit-taking on a better than expected NFP makes sense.
EURUSD Technical Picture
The beauty of Japanese candlesticks patterns is that they take little time to form. In this case, the evening star formation needs only three candlesticks – days, in our example.
The pattern’s first candlestick has a strong, bullish real body, with no indication about what will follow. Next, a candlestick with a small real body already signals hesitation. Finally, the last candlestick’s real body completes the pattern.
For such a pattern, the easiest way to trade it is to go short at the close of the last candlestick. Next, set a stop-loss order at the highest point in the three-candlestick formation. Finally, target a 1:2 risk-reward ratio. Following all these steps gives a target for the EURUSD close to 1.1450.
Besides that, we can spot a small double top formation above the 1.19 level. The pair tried twice to break higher and failed every single time so far. Hence, the double top reinforces the bearish thesis indicated by the evening star.