Possible bull breakout above bear flag late in a bear trend on the EUR/USD 120-minute chart.
The EUR/USD had a big bear breakout on Friday below an attempted bull flag on the daily chart. The breakout was strong enough so that the 1st reversal up will likely be sold and be followed by at least one more test down. However, the selloff is still in a trading range and still above the April 25 strong bull reversal. There is about a 50% chance that Friday’s bear breakout will fail, even if there is 1st another one or two days down.
Although at least a small 2nd leg sideways to down is likely, and although last week was an entry bar on the weekly chart after a wedge top, the odds are that the best the bears will get over the next week is a trading range. The bear breakout on Friday was decent, but not strong enough to convince most traders that it is the start of a swing down.
If the bears get strong follow-through selling, traders will not deny it. They will sell. It is more likely that traders will conclude that the selling has not been very strong, and the 3-week selloff is probably getting near its end. The odds favor a bounce early this week and the at least a trading range. The EUR/USD has rallied about 50 pips above Friday’s low. The rally on the 60-minute chart has lacked consecutive big bull trend bars. Many of the bars overlap, and there are many bear bars. This rally is a bear flag on the 60-minute chart. However, a bear flag in a weak selloff that is holding above the low of a strong rally (the April 24 low) has about a 50% chance of being followed by a bull breakout, and a 50% chance of a bear breakout. If there is a bear breakout, there is at least a 50% chance that it will fail, and this bear flag will be the Final Flag of the 2-week selloff from the May 3 high.
A Final Flag does not mean the start of a bull trend. Its minimum goal is an end of the bear trend on the 60-minute chart. The daily chart entered an 8 bar tight trading range on April 1. That is an area of intense agreement. The bulls tried to get a bull breakout and failed. The bears are trying to get a bear breakout. More likely, the daily chart will again go sideways for several days at this price level.