The EUR/USD chart rallied for 4 days from a higher low in a bull channel. Yet, there is a wedge and a head and shoulders top. The bears want at least a 2nd leg down.
The EUR/USD daily chart has 4 consecutive bull bars after last week’s higher low. While this reduces the chances for a 2nd leg down from the wedge top, the odds still favor that 2nd leg down. Also, since the bears have been making money by selling above prior highs for 7 weeks, they will probably sell above the September 8 high. Therefore, if the bulls get above that high, there is a 60% chance that the breakout will fail. Hence, the bulls only have a 40% chance of a measured move up without a swing down to the bottom of the developing trading range first.
The breakout would then be a failed breakout above a wedge top. The odds would still favor at least two legs and 10 bars down. Hence, this 7-week wedge bull channel is probably the early stare of a trading range.
Overnight EUR/USD Trading
Since the rally on the daily chart is above the midpoint of last week’s selloff, it is at resistance. In addition, today’s 11 a.m. FOMC announcement is unusually important. Therefore, today will probably trade in a small range before the report. The 5-minute chart has been in a 25 pip range overnight.
While sometimes there is a strong breakout before the report, that is unusual. A small trading range is much more likely. However, because the report is unusually important, it will probably lead to a big move up or down. This is especially true since the daily and weekly charts are climactic and at resistance.
When a market is in breakout mode like this, there is a 50% chance that the breakout will be up and a 50% chance it will be down. In addition, there is a 50% chance that the initial breakout will fail. Therefore, after the report, most traders should wait at least 10 minutes before trading.