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. 

Advertisement
2017 Trader of the Year is back! Don't miss the opportunity to win more than $12.000 in prizes!

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.