The EUR/USD is in a nested wedge top on the daily and weekly charts near the top of a 2-year trading range. As strong as last week’s rally was, the past 3 days have been dojis, which is a sign of a balanced market. The bulls are weakening just below the October major lower high around 1.150. They might still get their bull breakout, but the nested-wedge tops increase the chances of a TBTL Ten Bar Two leg correction on the daily chart. This means a couple of weeks of sideways to down trading.
However, as long as the EUR/USD holds above the March 17 high, there is a possibility of a measuring gap, and a probability that there will be at least a small bull breakout within a week. I showed that gap on yesterday’s chart. If the bulls get a strong breakout above this 3 day bull flag, the measured move up would be about 30 – 40 pips above that March 17 high.
Whenever there is a trading range in a bull trend, like there is on the 60-minute chart, the EUR/USD is also in a bear trend. The bears see a head and shoulders top, and if there is a bear breakout, everyone will see that the bear trend began with the March 1 reversal down.
The bulls see a double bottom bull flag. If there is a bull breakout, traders will see the trend beginning with the March 1 strong bull reversal. The more bars that get added to a trading range, the more the probability falls to 50-50. The bulls still have a higher probability, but their advantage at this point is now maybe 55%. If the trading range continues for about 10 – 20 bars on the daily chart, the bulls will have lost their entire edge, and the bears will have the same chance of success.
The EUR/USD has been in a 30-pip range overnight. This means that day traders are mostly scalping, and many are entering with limit orders and scaling in. This is common for Forex day traders. Everyone wants a strong breakout with follow-through because traders then quickly make a lot of money. However, 90% of the bars on any chart are either in a trading range or in a channel, and only 10% are in a strong breakout. The result is that trading profitably requires a lot of decisions and trade management most of the time.