The daily EUR/USD Forex market is testing the top of the 6 month trading range. If the bulls get a strong breakout, the next target is the November high.
Yesterday’s big gap up increased the chances of a successful break above the 6 month head and shoulders bottom. Since the momentum up is strong, the odds favor at least a strong break above the range.
If the bulls succeed, the next resistance if the November sell climax high because that is the next major lower high. Yet, most breakout attempts fail. Therefore, the odds are that this one will fail as well, even if it continues for another 50 – 100 pips.
2 year trading range intact
If the EUR/USD rallies another 50 pips above the March high and then reverses, the bears would see the 2107 rally as a wedge bear flag on the weekly charts. Therefore, the bulls need much more to convince traders that the 2 year trading range is about to end. Consequently, they need to break strongly above its top, which is the November 2015 high of 1.1712.
Breaking above the 6 month high is therefore only one small step in the process. As a result, traders will assume that the 2 year trading range will continue indefinitely. Since the monthly chart is still below its moving average, the odds still slightly favor a bear breakout of the 2 year range.
Overnight EUR/USD Forex trading
The 240 minute chart has had 3 pushes up over the past 12 days. Since the current 3rd push has been strong, the bears will probably need at least a micro double top before they can create a reversal down. Yesterday’s sell off and then the 30 point rally of the past 2 hours met that minimum.
Since the 12 day bull channel is tight, the odds are that the 1st reversal down would be minor. Therefore, the best the bears can probably get over the next week is a 50 – 100 pip pullback. Hence, they want the strong rally to evolve into a trading range. If they succeed, they then would try to create a major trend reversal. The bulls know that the odds are that the 1st reversal will fail. They therefore correctly believe that the rally will continue for at least another 50 – 100 pips over the next week or so.
The odds are that the bulls will get their break above the November high. Yet, because most breakouts fail, the new high will probably reverse down and be the 3rd push up in a 6 month wedge rally.
Consequently, this strong 3 week rally will be just another strong leg in the 6 month trading range. Hence, it will likely be similar to the strong selloff in early April. The trading range will therefore probably continue indefinitely.