FxWirePro: Descending Channel And Head & Shoulder Patterns Intensify EUR/USD Downtrend – Trading & Hedging Setup

EURUSD has been extending the prevailing downtrend upon head & shoulder patterns with head at 1.1239, shoulder 1 at 1.1135 and shoulder 2 at 1.1172 levels, while both leading & lagging oscillators are in line with the price slumps.

The prices remain under pressure after breaking 1.1070 channel support. Focus now turns to the more important 1.0980 pivot support region, as a break there will suggest the gains from last year’s 1.0880 lows is merely another correction and we re-test that support area at some stage. 

Otherwise, we need to see a recovery through 1.1055-1.1090 resistance to alleviate the downside pressure and take us back to an upper range.

On a broader perspective, we perceive the pullback from 1.2600 as corrective and look for a higher low over the 2017 1.0340 lows, ideally in the 1.09 to 1.08 region. 

While we are optimistic that the low was set in October at 1.0879, we don’t have full confirmation yet. A decline through 1.0980 medium-term support would increase risks that we re-test those lows.

Accordingly, we advocated directional positions for EURUSD couple of days ago, we now continue to uphold the strategy on hedging grounds.

The Strategy: At spot reference: 1.1000 levels (while articulating), contemplating above technical rationale, one can execute boundary options strategy. Such exotic option with upper strikes at 1.1021 and lower strikes at 1.0990 levels likely to fetch exponential yields than the spot moves.

Alternatively, we recommend shorts in EURUSD futures of Feruary’20 delivery for the major downtrend, simultaneously, longs of April deliveries. The short leg is likely to hedge potential slumps and any abrupt upside risks could be arrested by the long leg. Thereby, one could be able to directionally position in their FX exposures on hedging grounds.