EUR/USD Analysis: Investors hedging against potential rejection at H&S neckline?
|The EUR/USD pair is struggling to break above the head and shoulders (H&S) neckline resistance of 1.1674 for the third straight day.
The open interest activity in the EUR/USD Dec expiry options shows that investors are seeking downside protection against potential failure at the head and shoulders neckline hurdle.
CME EUR/USD EUUZ7 Open Interest (24.99 DTE) vs 1.1689
| Call Summary | |||||
| Total | ITM | OTM | |||
| OI | Chg | OI | Chg | OI | Chg |
| 70,632 | 264 | 13,930 | 5 | 56,702 | 259 |
| Put Summary | |||||
| Total | ITM | OTM | |||
| OI | Chg | OI | Chg | OI | Chg |
| 80,960 | 831 | 15,814 | 259 | 65,146 | 572 |
- The open interest (OI) or open positions in the put options jumped by 831 contracts yesterday. Meanwhile, the open positions in call options increased by only 264 contracts.
- Also, over the last two trading days, the open positions in the puts have gone up by 909 contracts and the open positions have increased only by 270 contracts.
- The open interest change clearly indicates there is increasing fear that a failure/rejection of the head and shoulders neckline resistance could lead to a fresh sell-off in the pair.
Technical studies
Daily chart
- On the chart above, the 50-day MA has topped out, but the 100-day MA is still sloping upwards. The 5-day MA and the 10-day MA are curled up in favor of the bulls.
- Furthermore, on the 1-hour chart, the spot has formed a nice higher lows pattern. Also, the RSI on the 1-hour is above 50.00 (bullish territory) and is trending.
- On the 4-hour chart, the 50-MA has topped out, the 100-MA is neutral and the RSI holds the bullish territory.
View
- Thus, the spot is likely to visit the 1.1730-1.1750 region. The upside could be exaggerated if the breach of the neckline hurdle forces investors to unwind their long put positions.
- Bearish scenario - Failure to close above the neckline resistance today if followed by a break below the 10-DMA could yield a sell-off to 1.15 levels.
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