Following the NFP data on July 5th, this pair has staged somewhat of a recovery, which might be consistent with a test of the neckline after its breach, but I must admit it is a bit of a stretch as the breach is hardly conclusive (see chart).
That said, I notice, after analysis of the volume associated with the head and shoulders in this chart, that it is consistent with the pattern's success.
(From http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns:head_and_shoulders_t Volume: As the Head and Shoulders pattern unfolds, volume plays an important role in confirmation. Volume can be measured as an indicator or simply by analyzing volume levels. Ideally, but not always, volume during the advance of the left shoulder should be higher than during the advance of the head. This decrease in volume and the new high of the head, together, serve as a warning sign. The next warning sign comes when volume increases on the decline from the peak of the head. Final confirmation comes when volume further increases during the decline of the right shoulder.
UPDATE 11 July 2013
Massive volatility in FX markets as FOMC inspired short covering in EUR and gold sends markets reeling. From the point of view of the potential head and shoulders in the EURAUD, we have now seen the neckline clearly broken and the rally back now has retested the breakdown. The risk is now clearly defined at 1.4250 as the top of the left shoulder which should not be exceeded if the pattern is to play out. (see chart)
UPDATE 13 July 2013
The head and shoulders pattern has been invalidated and I have stopped out of any short EURAUD positions. In fact, by trading and closing above 1.44 on a weekly basis and invalidating the H&S pattern, there is a strong case for expecting a significant move higher in the EUR versus the AUD in the medium term to about 1.4900 trend channel resistance. (see chart)
Massive volatility in FX markets as FOMC inspired short covering in EUR and gold sends markets reeling. From the point of view of the potential head and shoulders in the EURAUD, we have now seen the neckline clearly broken and the rally back now has retested the breakdown. The risk is now clearly defined at 1.4250 as the top of the left shoulder which should not be exceeded if the pattern is to play out. (see chart)
UPDATE 13 July 2013
The head and shoulders pattern has been invalidated and I have stopped out of any short EURAUD positions. In fact, by trading and closing above 1.44 on a weekly basis and invalidating the H&S pattern, there is a strong case for expecting a significant move higher in the EUR versus the AUD in the medium term to about 1.4900 trend channel resistance. (see chart)
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