After a 160-pip rally to above a lower high and the bear trend line, there are some gap bars on this 240-minute chart. This 3-day wedge bear flag will probably have a couple small legs down. Then, the bulls will try to create a major trend reversal. There are targets above. Hence, a big trading range is likely.
I wrote last week that the EUR/USD daily chart would probably fall a little below the December 2015 low and then rally for 200 pips. It fell about 20 pips below that low, and rallied 160 pips so far. While the bears are eager to resume the bear trend, the selling has been climactic. Most bears will not be eager to sell again for about 10 bars, or 2 weeks. Therefore, the odds still favor a 2 legged rally lasting about a couple of weeks.
Targets For The Bear Rally
Since bears put stops above higher lows, these are targets for the rally. The obvious one is the November 22 high, which is the top of a potential Final Bear Flag on the 240-minute chart. That high is about 150 pips above this week’s low, and the bulls reached it last night. While a rally there might be the top of the bear flag, there are many lows around 1.0800 on the daily chart. That resistance is a magnet. Since it was tested so many times this year from above, it will probably now get tested from below. Therefore, the bear rally will probably go up at least 200 pips from this week’s low.
Overnight EUR/USD Forex Trading
The EUR/USD sold off for the past 5 hours. Yet, it is only a 50% pullback from last week’s rally. Because the selloff was strong, the odds favor at least a small 2nd leg down. Since there are gap bars on the 240-minute chart, the odds are that the selloff will lead to another rally around the December 2015 low. There is a 60% chance of at least another week of trading range price action. As a result, traders will correctly see buy and sell setups.
Probable Major Trend Reversal Buy Setup This Week
The 3-day rally reversed down strongly over from a 3-day wedge bear flag over the past 5 hours. Since this was a wedge rally, traders expect a couple of legs down. Yet, the 240-minute chart had Gap Bars. As a result, traders see that the bulls were strong enough to put bars completely above the moving average.
Furthermore, the rally broke above the bear channel. These are common ingredients in a major trend reversal. Therefore, the likely 2-legged selloff will probably again find buyers around the December 2015 low. If so, that could create a major trend reversal buy setup. Hence, there would be a 40% chance of a strong swing up, possibly to October 25 neck line of the 10-month head-and-shoulders top.
Probably 2 More Weeks Of Trading Range
Even when there is a major reversal, the chart usually evolves into a big trading range. Most attempts at a major trend reversal result in a small trading range. The bears are hoping that the 3 day rally is simply a pullback from the breakout below the December 15 low. While they have a 40% chance of a strong selloff below that low, there are more likely buyers below. There is therefore a 60% chance of either a trading range for a couple of weeks. There is a 40% chance that there will be a major trend reversal up to the October 25 low.