The daily EUR/USD chart is breaking above a wedge top and above the neck line of a head-and-shoulders bottom.
The EUR/USD is breaking above the top of a 5-month trading range. The bigger the breakout bar is, the more likely there will be follow-through buying. Furthermore, the more the bar closes on its high, the more likely the rally will continue. In addition, the earlier there is strong follow-through buying over the next few days, the more likely the breakout will reach targets above.
The first target is a measured move up from the height of the most recent bull swing. That is therefore the height of the rally from the right shoulder. Of the EUR/USD Forex market rallies above that, the next target is a measured move up based on the height of the entire 5-month range. The most important target is the November 9 top of the strong bear reversal.
The Bear Case
Since most breakouts fail, the odds are against the rally continuing up to the targets. Yet, this is a good pattern. In addition, the breakout so far is strong. The bears need to stop the rally and erase signs of bull strength. Therefore they need to prevent the creation of consecutive big bull trend bars closing on their highs. Furthermore, they need to create signs of strong bears, like a big bear reversal bar within the next day or two. In addition, they probably need at least a micro double top and a strong reversal down.
Since the context and the current breakout favor the bulls, the odds are the best the bears can probably get this week is a halt to the buying. Hence, a reversal within the next few days would probably be minor. It would therefore more likely lead to a small trading range, and not a bear trend.
Overnight EUR/USD
The EUR/USD Forex market is breaking above the top of a 4-week wedge top. If the bulls continue the overnight strong breakout, the market cycle will start over. This means that the breakout will eventually weaken into a bull channel, and then eventually into a trading range.
While most breakouts above bull channels fail, this one has been strong overnight. It therefore will probably have at least a 2nd leg up over the next few days. If it continues to grow over the next couple of days, the odds will favor a measured move up based on the height of the 4 week wedge rally. Since that wedge rally is also the rally up from the right shoulder of the head and shoulders bottom, there is an added reason for the bulls to succeed.
Since the overnight rally had 3 consecutive buy climaxes, on the 60 minute chart, bulls will probably take partial profits. As a result, today might enter a trading range. Yet, the odds still favor at least one more push up over the next couple of days.