Great Graphic: Bearish Euro Pattern

This Great Graphic is a weekly bar chart of the euro on Bloomberg. It appears to be carving out a large head and shoulders pattern since last September. 

The neckline is being approached near $1.2750, which is why we bring it to your attention now. The important point about technical patterns is the price projection.

The pattern, from head to neckline is about 9.5 cents, suggesting an initial target of around $1.18. This is not far from our year-end target of $1.20 and back toward the lower end of the euro's decade long range. 

The neckline has a small upward slope, which is often seen in a topping pattern. A caveat is that usually the head and shoulders pattern is formed at the end of a large rally. In this case, the euro did rally off the $1.20 low seen last year before Draghi's OMT offer, but in the larger scheme of things, the euro spent little time above the middle of the $1.20-$1.50 that has confined the bulk of the price action over the past five years.

The Dollar Index is heavily weighted toward the euro and currencies that move in the euro's orbit, and can be sought for confirmation.  First, it appears to have put in a double bottom  (September 2012 and February 2013) near 78.60-80.  The neckline is near 81.45, which projects toward 84.30.    However, a convincingly break of the 84.00 area points to larger technical pattern that suggest scope toward 88.00.   This is near the 2010 high.  The euro bottomed in 2010 after falling briefly through $1.19.