The EUR/USD is testing the September 18 lower high around 1.1470. The bears want a double top near the top of the 6-month trading range. The bulls want a breakout and then a test of the August high around 1.1710. Today and tomorrow’s price action might let online day traders know what the path of the next couple of weeks will be.
The 60-minute chart of the EUR/USD has been in a broad bull channel since the September 22 double bottom. Bull channels usually behave like bear flags and have bear breakouts. Because this rally is testing important resistance, traders learning how to trade the markets should be aware that the chance of a bull breakout above the bull channel is at least 40%. There is still a 60% chance of a bear breakout. A bear breakout can result in either a trading range that could last for many days, or a swing down.
The 5 minute chart had a 40 pip breakout over the past 20 minutes. If the bulls get strong follow-through buying, today could break above the September 18 lower high, and the EUR/USD could have a bull trend day. A 40 pip breakout is not particularly big, but if the follow-through is relentless, the bulls could accomplish their goal. The bears do not mind the bull breakout as long as it becomes a buy climax and is followed by a reversal down from that 1.1470 area.
Those who trade the markets for a living will pay attention to what happens with today’s rally because it can create a trend day up or down. Because the EUR/USD has been in a trading range for months, trading range price action is strong. Trading ranges resist breakouts. This means that the odds are against a successful breakout on this first test up. However, even though a pullback and a trading range are more likely before the EUR/USD makes up its mind, the potential is there and day traders should be prepared to either a strong breakout or a strong reversal down.