EUR/USD Trading Strategies
This daily EUR/USD chart shows a small, weak 2-legged rally after a wedge bottom. It is therefore a bear flag and the odds favor a bear breakout below the flag. The bulls need a strong rally above major lower highs to end the bear trend.
The weekly EUR/USD chart has had 4 consecutive bull trend bars. Furthermore, each has closed above its midpoint. In addition, this reversal up is a 2nd entry buy after a failed breakout below a yearlong trading range. Yet, the bulls do not yet have a big bull trend bar. Since traders want to see one or more big bull bars before concluding that the bulls are in control, if one begins to form, the EUR/USD could reverse up quickly.
Without a strong bull reversal, traders believe that there will be at least one more leg down. Because the context is good for the bulls, as are 4 bull bars, traders will be quick to buy if a big bull trend bar begins this week. Without it, traders will assume that the 4 week rally was just a bear flag. If the bulls do not get a breakout soon, the bears will rigger the break below the 4-week bear flag. Furthermore, if there is a big bear trend bar this week, it would increase the odds of a move down to par (1.0000).
Overnight EUR/USD
While the EUR/USD weekly chart has had 4 consecutive bull trend bars, the daily chart does not have consecutive big bull trend bars. In addition, it has had 2 legs up from the wedge bottom. As a result, the bulls met their minimum goal. Without a strong bull breakout above the bear flag, the odds favor a test down.
The bulls now hope for a small double bottom and then a bigger two legged rally. In addition, they want the rally to get above lower highs. That would end the bear trend on the daily chart and create a trading range.
Yet, the rally was weak. Therefore the odds favor a test back down. The bears need to break strongly below last Wednesday’s 1.0453 minor higher low. If they get it, they will then try to break to a new low and then down to par (1.0000). While the odds favor at test down to 1.0450 this week, trading ranges resist breaking out. Therefore, there probably will be buyers there and the trading range will probably continue.
The overnight selloff was weak. It is therefore still a pullback in a bull channel on the 60-minute chart. The rally since Wednesday has had 2 legs up. The odds favor one more push up to a wedge top on the 60-minute chart before the test down on the daily chart.