Inverse Head and Shoulders Formation Sets the Stage for Bullish Reversal

Central Bank

Economic

Summary:

This specific price point has triggered significant bullish rebounds on multiple occasions in the past, adding significant technical weight to the potential for a new upward impulse from this zone.

BUY EURAUD

EXP

TRADING

1.75800

Entry Price

1.77880

1.74800

1.75551 -0.00390 -0.22%

0.0

Pips

Flat

1.74800

Exit Price

1.75800

Entry Price

1.77880

During Friday’s European session, Gediminas Šimkus, European Central Bank (ECB) policymaker and Governor of the Bank of Lithuania, noted that risks to both inflation and economic growth have increasingly tilted to the downside.

These comments follow last week’s decision where the ECB maintained its key interest rates for the fourth consecutive meeting. The Deposit Facility remains at 2.00%, the Main Refinancing Operations rate at 2.15%, and the Marginal Lending Facility at 2.40%, a move that aligned perfectly with market consensus. In its policy statement, the ECB Governing Council reaffirmed its commitment to stabilizing inflation at the 2% medium-term target through a data-dependent, meeting-by-meeting strategy. During the post-meeting press conference, President Christine Lagarde clarified that neither rate hikes nor cuts were discussed, emphasizing that the bank remains cautious and cannot provide explicit forward guidance amidst the current climate of global trade uncertainty.

Market sentiment was further shaped by the release of the Reserve Bank of Australia (RBA) December meeting minutes. The records reveal that board members are losing confidence in whether the current monetary policy settings remain sufficiently restrictive. Evidence suggests that inflationary pressures may prove more persistent than previously anticipated, prompting a shift in the central bank’s internal dialogue.

The RBA underscored a strictly data-dependent approach moving forward, noting that several key inflation indicators will be released before the February meeting. Policymakers discussed the potential necessity of a rate hike at some point in 2026, stressing that more time is required to adequately assess the structural persistence of price pressures. Current market pricing reflects this cautious stance; while 30-day Interbank Cash Rate futures imply a low probability of an immediate hike, expectations for a more restrictive policy further down the line remain intact. Furthermore, Australian consumer inflation expectations rose to 4.7% in December from a three-month low of 4.5%, reinforcing the RBA’s hawkish bias. Inverse Head and Shoulders Formation Sets the Stage for Bullish Reversal_1

Inverse Head and Shoulders Formation Sets the Stage for Bullish Reversal_1

Technical Analysis

The EUR/AUD pair is currently developing a classic Inverse Head and Shoulders pattern, a technical formation typically signaling a trend reversal from bearish to bullish. This structure is identified by a critical support zone and a subsequent lower peak (the "head"). As the price approaches the right "shoulder," the pair is testing a crucial support level at 1.7585. This specific price point has triggered significant bullish rebounds on multiple occasions in the past, adding significant technical weight to the potential for a new upward impulse from this zone.

From a momentum perspective, the Relative Strength Index (RSI) has declined to the 31 level, rapidly approaching oversold territory following a period of strong downward pressure. Meanwhile, the 100 and 200-period Moving Averages (MAs) are currently situated at 1.7647 and 1.7717, respectively. These averages are hovering just above the current price action; a decisive break and close above these levels could serve as a catalyst, accelerating the bullish momentum toward higher targets.

However, traders should exercise caution: a breakdown below the local low of 1.7480 would effectively dissolve the Inverse Head and Shoulders pattern. In such a scenario, the bullish setup would be invalidated, leaving the pair exposed to a new bearish leg and further downside expansion.

Trading Recommendations

Trading direction: Buy

Entry price: 1.7580

Target price: 1.7788

Stop loss: 1.7480

Validity: Dec 31, 2025 15:00:00

Risk Warnings and Disclaimers

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Gerik

Traders' Opinions

Forex

Summary:

CADJPY is trading around 113.1–114.4 after a rally from recent support levels, driven by ongoing yen weakness against major currencies while the Canadian dollar holds up relatively well amid stable commodity prices

BUY CADJPY

EXP

PENDING

113.311

Entry Price

115.300

112.650

113.880 -0.223 -0.20%

Pips

PENDING

112.650

Exit Price

113.311

Entry Price

115.300

Market overview

CADJPY is currently trading near 114.29, with today’s intra-day range roughly between 112.84 and 114.46. The pair bounced back from the lower end of this range earlier in the session, suggesting that buyers are defending major intraday support.

The broader macro context shows the Japanese yen remaining structurally weak, even after recent intervention warnings from Japanese authorities and short-term strength in other crosses; this sustained yen weakness favors higher CADJPY on a short-term basis. Meanwhile, the Canadian dollar has steadied on mixed domestic data and modest improvements in oil prices, which help maintain CAD demand relative to JPY.

Market sentiment

Sentiment for CADJPY is still skewed toward risk-on FX behavior, largely due to yen depreciation and relative CAD resilience. Yen weakness has been driven by the Bank of Japan’s cautious guidance higher rates but no clear hawkish path which makes carry trades (borrowing cheap yen to invest in higher-yielding currencies like CAD) attractive in the short run.

Despite official warnings about intervention to arrest excessive yen moves, traders remain willing to maintain long positions against JPY unless a clear shift in policy or intervention materializes; this creates an environment where rallies can persist into technical zones where buyers feed off price momentum rather than fresh fundamentals.

Technical analysis

CADJPY Bounces Off Support as Yen Weakness Continues_1

On the M15 timeframe, price structure shows recent demand near the lower range support (around 112.84–113.00), with subsequent candles reclaiming and stabilizing above the mid-band (20-period SMA) of Bollinger Bands a bullish sign indicating that the short-term average is serving as support rather than resistance. Continued higher closes above the mid-band suggest that the path of least resistance remains upward.

The Ichimoku (9,26,52) indicator on M15 is tilted positively as price action hovers around or above the cloud after pullbacks, with the trend generally favouring upside when the Tenkan Sen (conversion line) remains above the Kijun Sen (base line) and supports higher price levels.Stochastic (5,3,3) readings on M15 reflect resets near neutral after dips, with upward crossovers typically occurring as price rebounds a pattern that reinforces short-term bullish momentum if buyers continue to defend intraday support around 113.0–113.5.

Trade plan

Entry: 113.90

Take Profit: 115.30

Stop Loss: 112.65

Risk Warnings and Disclaimers

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Manuel

Central Bank

Economic

Summary:

The Relative Strength Index (RSI) has plunged to the 25 level, signaling extreme oversold conditions that typically attract value buyers.

BUY USDCHF

EXP

TRADING

0.78735

Entry Price

0.79830

0.78300

0.78744 +0.00002 +0.00%

0.0

Pips

Flat

0.78300

Exit Price

0.78735

Entry Price

0.79830

The U.S. Bureau of Economic Analysis reported that the economy expanded at a robust annualized rate of 4.3% in the third quarter. This figure significantly outperformed market expectations of 3.3% and surpassed the previous estimate of 3.8%. Accompanying this growth, inflation metrics within the Gross Domestic Product (GDP) report remained firm: the GDP Price Index rose by 3.7%, while Personal Consumption Expenditures (PCE) increased by 2.9%, with PCE Prices climbing 2.8%.

Despite strong growth, the manufacturing sector showed signs of cooling. Durable Goods Orders fell by 2.2% in October, reversing a prior gain of 0.7%. Orders excluding defense dropped by 1.5%, and while orders excluding transportation saw a marginal 0.2% increase, overall Industrial Production slipped by 0.1% month-over-month.

The divergence among Federal Reserve officials continues to shape market sentiment. Fed Governor Stephen Miran remarked on Monday that recent data should steer policy in a more "dovish direction," warning that failing to ease policy could heighten recessionary risks. Conversely, Cleveland Fed President Beth Hammack told The Wall Street Journal on Sunday that she sees no immediate need for rate cuts, citing persistent inflationary threats and suggesting that rates could hold within the 3.50%–3.75% range through the spring. Adding to the debate, National Economic Council Director Kevin Hassett noted on Tuesday that the Fed is moving too slowly in reducing rates despite evidence of faster-than-expected economic growth.

In Switzerland, the Swiss National Bank (SNB) reiterated its unchanged policy stance. In its Q4 Quarterly Bulletin, the institution confirmed it maintained its policy rate at 0%, viewing medium-term inflationary pressures as largely contained. The SNB considers the current setting appropriate to support economic activity while ensuring price stability. This assessment aligns with the latest Swiss ZEW Survey for December, which fell to 6.2 from 12.2. While this decline in sentiment points to a more cautious economic outlook, it is not deemed severe enough to force the central bank into immediate monetary tightening. Oversold RSI and Key Fibonacci Confluence Point to a Bullish Bounce_1

Oversold RSI and Key Fibonacci Confluence Point to a Bullish Bounce_1