Forex: Fractal Head and Shoulders on Euro

Ed Ponsi

The euro had a good run over the past month. However, that rally has morphed into a bearish technical pattern known as a head and shoulders. 

The head and shoulders pattern formed over the past two weeks and places the European currency in a tough spot. Based on the height of the pattern, viewed below on the 4 hour chart, the euro should fall to 1.11 against the dollar. However, there is more to the story. 

euro

The head and shoulders pattern is marked in black; however, if you look inside the right shoulder, another head and shoulders is visible, marked in red. This is known as a fractal head and shoulders, which is a pattern within a pattern. 

Euro's bullish run during the month.of May opens the door to an even greater decline. This is because euro gained about 600 pips over the course of a few weeks. 

When price movements occur quickly, there is no time for the formation of support and resistance levels that might slow the euro's decline during a reversal. 

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