The EUR/USD weekly Forex chart has sold off for 5 weeks from a double top bear flag with the July 9 high. There is only a 40% chance of a break below the August 15 low and a measured move down to 1.08 (pink lines).
The EUR/USD weekly Forex chart has been in a tight trading range for 6 months. Trading ranges always have both a reasonable buy and a reasonable sell setup. However, they resist breaking out.
The bears have a double top bear flag with the July and September highs. There is a 40% chance of a breakout below the August 15 low neckline and then a measured move down to 1.08. That means that there is a 60% chance of a higher low above the August low or of a break below that quickly reverses up. break below that reverses up would form a wedge bull flag with the November 7 and August 15 lows on the weekly chart.
The 5-week selloff lacks consecutive big bear bars closing on their lows. Most of the bars overlap the prior bar. Consequently, the momentum down is weak and the selloff is more likely a bear leg in the 6 month trading range than the start of a resumption of the selloff in April and May.
I mentioned yesterday that there could be a nested parabolic wedge forming on the daily chart. Since yesterday’s selloff was strong, the bulls will probably need a micro double bottom before they can get a 2 week, 200 pip reversal back up to the October 16 high.
Overnight EUR/USD Forex Trading
The EUR/USD 5-minute Forex chart has been in a 30 pip range overnight. This is what typically happens after a sell climax like the one from yesterday. The selling stops for a day or so, and then traders decide if there will be a reversal or another leg down. Since the bulls probably will need a micro double bottom, the odds favor at least a small 2nd leg down within a few days.
If today is a bull trend day, which it is so far, it would represent bad follow-through selling on the daily chart. The bulls would then have a 40% chance of the 2-week rally beginning without a micro double bottom.
For the bears, today is a pullback from yesterday’s selloff. Today therefore will be a sell signal bar for tomorrow. But, if today closes above its open, the bar on the daily chart will have a bull body. There would then probably be more buyers than sellers tomorrow below today’s low.
Consequently, the fight today will be over the close. If it is above the open, the odds are that there will be a parabolic wedge reversal beginning within a few days. If it closes on the low, the bears will have a 60% chance of at least another day or two down.
Remember, there is only a 40% chance of a strong break below the August 15 low. As strong as the 2-week selloff has been, it is no stronger than any other selloff or rally for the past 6 months. During every one of them, I said that a reversal was more likely than a breakout. That is always the case in a trading range.