The EUR/USD will probably have a big move up or down after the FOMC report that comes out today at 2 pm EST. Although there is a 70% chance that the report will lead to a selloff in the stock market within the next 3 days, the EUR/USD could do anything. Those who trade the markets for a living do not care what any other market is doing. If the are trading the EUR/USD, all they care about is whether it is going up or down. They do not care if the stock market, crude oil, or gold are going up or down.
The EUR/USD daily chart is in a 4-day bull flag after last week’s reversal up. However, that one day rally was a small 2nd leg in the pullback from the February selloff, which was a 2nd leg up from a bigger selloff that started in October. Get the picture? A series of shrinking 2 legged moves in a trading range is a triangle. It is a sign that the bulls and bears are precisely balanced. However, markets are never precise, so traders know that the price is very wrong. What they do not yet know is whether it is too high or too low.
The EUR/USD daily chart is in breakout mode. This means that there is about a 50% chance of a bull breakout and of a bear breakout. Also, there is a 50% chance that the initial breakout will reverse. Everyone wants certainty, but that only briefly exits in trading. It only occurs in strong breakouts, and only 10% of the bars on any chart are in strong breakouts.
The other 90% of the bars have about a 40 – 60% probability of going up or down. When a Forex market is in the apex of a triangle, that band of probability shrinks to maybe 45 – 55%, depending on the momentum of the past few days. That is where the EUR/USD is right now. Normally, a bull flag would have at least a 60% chance of a bull breakout. This one has less than a 55% chance of a bull breakout and at least a 45% chance of a bear breakout.
The European session has been in a 30-pip tall trading range. That does not offer much opportunity to make money. Online day traders might scalp for 10 pips using limit orders to sell above minor highs in the top half of the range and buy below minor lows in the bottom half. Most traders should wait for a breakout up or down. There will be a big move after the FOMC report. Since there is a 50% chance that the initial breakout will fail with 10 minutes, most traders should wait about 10 minutes before taking their first trade after the report.