The EUR/USD daily Forex chart had a wedge top after a buy climax at resistance. Its 2nd leg down is breaking below the neck line of a head and shoulders top. The 1st target is a measured move down to below the beginning of the wedge. The bulls want the bear breakout to reverse up today or tomorrow, but the best they will probably get is a trading range over the next 2 months.
The EUR/USD daily Forex chart had a wedge top. The rally was climactic and it tested the bottom of a 10 year trading range on the monthly. As was likely, it is now pulling back. Because the rally was so strong on the monthly chart, the current selloff will probably be minor on that chart. This means that it will probably last 2 – 3 months and become a bull flag. The bears will probably need at least a micro double top on the monthly chart before they can reverse the bull trend.
When there is a wedge top reversal, the market usually has at least 2 legs down to the beginning of the wedge. That target is the August 17 low. Furthermore, the 2nd leg down is from a lower high. As a result, the wedge top usually becomes a head and shoulders top and a lower high major trend reversal. That is what happened here.
Targets for the bears
The bears need more than a strong break below the neck line, which is the bottom of the 4 week trading range. They need strong follow-through selling within 2 days. If they get it, the odds go up that they will reach their minimum target below. On the other hand, if the bear breakout is followed by a bull bar within a day or two, it increases the chances that the breakout will fail. The bull would then try to get a reversal back up. Yet, even if the bulls get a breakout above the September 8 high, that breakout would probably fail. Hence, the best the bulls will probably get over the next 2 months is a trading range.
Yet, the rally on the weekly and monthly charts is strong. Consequently, while the selloff can be a bear trend on the daily chart, it will probably only be a bear leg in a trading range on the weekly and monthly charts. The EUR/USD market is now simply deciding on the bottom of the range. Most likely, it will be just below the August 17 low. If so, the range will be about 400 pips tall. Less likely, it could extend down to the bottom of the pullback after the June 27 bull breakout. That July 5 low is about 700 pips below the September 8 high. If the bear reach that target, the trading range will probably last 3 – 6 months.
Overnight EUR/USD Forex trading
The 5 minute chart sold off 80 pips overnight. Yet the selloff was in a spike and wedge channel bear trend. Since this is a sell climax, the odds are against much lower prices today. The top of the wedge channel is around 1.1830, which is a target for the bulls today or tomorrow.
The EUR/USD has been sideways for 3 hours. While the bears hope this trading range is a bear flag, the spike and channel bottom make it more likely a reversal pattern for a 50 pip rally. Day traders will probably mostly scalp, but they might get a 30 – 50 pip swing up today. Less likely, the bear trend will continue.