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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
TradingEURAUD
EXP
1.75800
Entry Price
1.77880
TP
1.74800
SL
1.75169 -0.00054 -0.03%
0
Point
Flat
1.74800
SL
CLOSING
1.75800
Entry Price
1.77880
TP
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.
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
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