TheEUR/USD forex market on the daily chart broke below the bottom of its 7-week tight trading range overnight but is reversing up. There is a head and shoulders top over the past 5 weeks. So far, today is a failed breakout below the neck line. Traders expected that since most trading range breakouts fail.
However, if today reverses back down and closes far below the range, traders will believe that a reversal down to the June 10 high is underway. It is more likely that attempts to break out of a trading range reverse and the trading range continues.
The bulls see today as a 2nd leg down from the Sept. 1 high. For them, it is a pullback in a bull trend. If today closes near its high, today will be a buy signal bar for a High 2 bull flag.
But while the bulls want a break above the range, they know that it is more likely that the best they will get is a bounce for a few days. They can see that the EUR/USD has had many legs up and down for 7 weeks and each has reversed after about a week. There is no reason to assume that a rally from here will be different.
Today will probably be a weak buy signal bar
The 5 minute chart of the EUR/USD forex market sold off to just below the bottom of the 7-week trading range and then reversed up. The bulls want today to close near its high. In addition, they want it to close far above the open and have a big bull body. Today would then be a more reliable buy signal bar for tomorrow.
The bears want today to close below the bottom of the range, back at the low of the day. They then want tomorrow to be a 2nd consecutive close below the range. If they get that, traders will conclude that a reversal down is underway.
What is most likely? In a trading range, traders expect weak buy and sell signals and bad follow-through after breakout attempts. Therefore, today will probably close above the low of the trading range and disappoint the bears. In addition, it will probably close in the upper half of the day’s range, which would make it a reversal day on the daily chart. But it will probably not have a big bull body, which will disappoint the bulls.
Overnight EUR/USD Forex Trading
The EUR/USD has been in a 35 pip range for the past 5 hours. Traders are deciding if the reversal up from the overnight low will continue to far above the open.
It is more likely that today will not get more than 30 pips from the open for the remainder of the day. Day traders have switched to scalping 5 hours ago and will continue to scalp unless the bars get bigger and there is a series of strong trend bars up or down.