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EUR/USD Strategies

Published 02/08/2016, 10:25 AM
Updated 07/09/2023, 06:31 AM

Since the December 3 bull-trend reversal, I have written every day that a 2nd leg up was likely, but that the pullback from that bull breakout could last a month or more. Last week was the 2nd leg up. It is possible that there will be many more legs up over the next year, but the bulls have achieved their minimum goal. The rally reached a leg 1 = leg measured move target and a measured move based on the height of the 3-month trading range. It is testing the bottom of the September trading range.

With the rally quickly reaching several resistance levels, many bulls took profits on Friday, and the profit taking continued overnight. The selloff from Friday’s high has now had 2 legs down on the 240-minute chart. The bulls see this as a High 2 bull flag (an ABC pullback from last week’s breakout). It is also testing the February 3 low. The bulls hope to rally from here and form a double bottom bull flag with that low.

The bears see the trading range since February 3 as a head and shoulders top on the 60-minute chart, and the overnight selling is breaking below the neckline, which was Friday’s low. About 60% or head and shoulders tops fail to be followed by a bear swing. More likely, there is a reversal, and then the trading range continues or there is a bull swing. Traders will find out early this week whether the EUR/USD bounces from support or breaks below and then tests the next support, which is the breakout point at the 1.1000 top of the 2 month trading range.

Although the EUR/USD sold off for the past 4 hours in the European session, it is near support and it has reversed up over the past hour. Friday’s trading range is a magnet and it might be the final bear flag in the selloff from Friday’s high.

Because the EUR/USD is in a swing up on the daily chart, it can resume up at any time. Since last week’s rally was strong, the odds are that the EUR/USD will need to go sideways for at least a couple of days before it can go down. Bull trends usually have to transition into trading ranges before they become bear trends.

The overnight sell off was strong enough so that the 60-minute chart will have to go sideways for several hours before the bulls will be able to get a resumption back up, if they are going to get a resumption up. The odds are that the EUR/USD will be sideways for a day or two.

Latest comments

I would like to thank you for sharing your insightful analysis
i think you were one of the few talking about a second leg up and i give you credit for that keep up the good work
i like how u cover pretty much all possible scenarios n then take credit for what transpires afterwards...
You are all Correct I love your analyst than another
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