The EUR/USD daily Forex chart has bounced for 2 weeks from the bottom of a 4-month trading range. The rally has stalled at the 20-day EMA. It is a bear flag. If there is a break above last week’s high, but then a reversal, the bear flag will be a wedge.
However, trading ranges resist breaking out. Consequently, the odds are against this bear flag leading to a 300-pip measured move down below 1.12. More likely, there will be buyers around the low from 2 weeks ago. They would create a double bottom with that low and then a 2 – 4 week rally to above the middle of the range. Alternatively, there could be a breakout above the bear flag without a test of the low.
The 4-month range is telling us that the bulls and bears feel the current price is fair. But, all prior trading ranges over the past 2 years ended within a couple months. Therefore, the tension has been building up for an unusually long time.
When that is the case, once there is a successful breakout, it will probably have more energy and endurance. It will therefore probably last for several months and move at least 300 pips.
Overnight EUR/USD Forex Trading
A tight trading range is a breakout mode pattern. But a breakout up or down will likely be brief. The odds favor a test of the low from 2 weeks ago. Consequently, a bull breakout will probably fail. Since a higher low is likely, a bear breakout would probably only last 2 – 3 days.
The past 3 days were doji bars in a tight trading range. Today is testing both the top and bottom of that range. Because the bars are small and the range is only 30 pips tall, day traders are scalping.