The technical picture in EURUSD has shifted a lot in recent weeks, from bullish to neutral to some bearish signs appearing now. The main highlight is that a bearish head and shoulders pattern can potentially come into play, if it is triggered with a break below the 1.0550 support, where its neckline is located (chart shown below).

In what has been crazy 5-7 trading days since last Tuesday, we’ve seen central bank rate hike expectations swinging massively up to now massively down. The Silicon Valley Bank failure in the US and today’s troubles of Credit Suisse in the Eurozone have investors cut their bets for more rate hikes from either the ECB or the Fed.

In the Forex market, the euro is in central focus with that ECB meeting tomorrow. Volatility is guaranteed, with the current situation around Credit Suisse making their decision that much more difficult. Today’s sharp drop quickly took EURUSD to this 1.0550 neckline support, and only a small further push lower is needed for a break to be confirmed.

EUR Under Strong Bearish Pressures

With Swiss bank Credit Suisse’s troubles mounting and its stock price plunging by 30% today, expectations for ECB rate hikes have shrunk accordingly. Consensus forecasts no longer expect the 50bp rate hike with 100% probability, meaning that a smaller 25bp is now the more likely scenario. If the ECB caves in under pressure and hikes only by 25bp (or doesn't hike at all), this will be bearish news for the euro currency, and EURUSD will likely drop below 1.0550.

Below we show the daily chart of EURUSD, which is now on the verge of breaking that head and shoulders neckline around the 1.0500 - 1.0550 zone. The neckline connects and is located right in this area which also coincides with the 100-day moving average (orange line). A technical break below this zone, with a completed daily close below the neckline and 100 DMA, would be a huge bearish signal for EURUSD.
 

Market positioning is still long EURUSD, which was built during the rebound in the autumn and winter period. This 1.0500 - 1.0550 zone that is now being tested is likely the key to this bullish/bearish sentiment turning point. A bearish break here should lead to the capitulation of many EURUSD bulls. This by itself can then set off a faster decline lower.

To the downside, 1.03 and then parity (1.00) stand out as the next support zones lower. These can be used as targets on a short trade. The projected target of the head and shoulders pattern, as can be seen in the chart above, is also at the parity zone (1.00). 

Trade Plan

Entry:

• Wait for a bearish break of the neckline;
• Look for a short entry once the trigger signal is completed 
• The trigger signal is likely to come tomorrow on that ECB meeting, so watch out for that event

Stop loss:

• Place decently above the neckline;
• The stop can be placed at least above 1.06 - 1.0650, and even above 1.07 would be a very reasonable location to place the stop

Targets:

• 1st - 1.03 - moderate support zone (take some profits here)
• 2nd - 1.00 - main target, this is the head projection of the H&S pattern