The EUR/USD daily Forex chart is in the middle of a triangle and at its apex. The odds are that it will break out up or down within a few weeks.
The EUR/USD daily Forex chart had an outside down day yesterday and is trading below yesterday’s low. It did not reach the bear trend line at the top of the triangle. Yet, it can still get there by going sideways.
The key prices on the daily chart are the March 27 major lower high and the April 6 major higher low. A break beyond either will be a breakout of the triangle. However, 50% of triangle breakouts fail and reverse. Traders want the breakout to have consecutive strong trend bars and 2 closes beyond the key prices. Without that, they will quickly look for a reversal.
Once there is a breakout, the chart would still be in its 4-month trading range. Traders need to see a strong break above the February 16 high or below the March 1 low. But, markets have inertia. That means that they are resistant to chance. Consequently, they repeatedly have strong legs up and down that reverse instead of leading to trends. Therefore, the probability is always higher when betting on reversals until there is a clear, strong breakout.
Overnight EURUSD Trading
The EUR/USD 5-minute chart sold off yesterday and is now testing below the April 12 low. The bulls will try to rally up from below that low today. However, the 60-pip overnight selloff was a strong breakout. The rally of the past 2 hours is therefore a bear flag. Consequently, the chart will probably test the overnight low within an hour or two.
Since a bear flag late in a bear trend is usually the final bear flag, a bear breakout will probably fail. Then, the bear trend will evolve into a trading range, which is likely today. Therefore, day traders will probably only scalp today.
This is especially true since the bears have achieved a reasonable goal overnight. If the chart simply stays around 1.23 today, the bar on the weekly chart will be a bear reversal bar. Hence, it will be a reasonable sell signal bar for next week.
But, look to the left. The weekly chart has reversed every 1 – 2 weeks for 4 months. Therefore, a sell signal bar is more likely to lead to a 1 week selloff than a bear trend. Until there is a breakout, traders will keep looking for reversals.