The EUR/USD daily Forex chart has been in a trading range for 3 months. There is therefore a good buy and a good sell setup. The odds are that there will be a bear breakout before a bull breakout. However, most breakouts fail. Therefore, the trading range is likely to continue for at least a few more weeks.
The bulls have twice tried to reverse up strongly from the August and October double bottom and failed. When the market tries to do something twice and fails, it then usually tries to do the opposite. Consequently, the odds are that the daily chart will fall from the 2 week double top and break below the bottom of the 3 week range. This would trigger a head and shoulders top sell signal. Major reversals like this have a 40% chance of starting a bear trend. More likely, the bear breakout will fail and the trading range will continue.
Weekly Chart Has 20-Gap Bar Buy Setup
The weekly chart (see Friday) makes slightly lower prices likely within a few weeks. This is because the 20-week exponential moving average is just below the trading range. Since it is a strong magnet and it is close, the odds are that the EUR/USD will not be able to resist its magnetic pull. As a result, the weekly chart will have to poke below the average within a few weeks.
Yet, the weekly chart has not touched its average in more than 20 weeks. This means that the bull trend on the weekly chart is strong. Therefore when the pullback reaches the average, there will likely be buyers there. This would be a 20-Gap Bar buy setup, and the odds favor the weekly chart going sideways to up once the pullback reaches that support.
Since the daily chart is in a trading range and there is currently a double bottom, the daily chart might rally to around the top of the 3 month trading range before there is a pullback to the 20 week EMA. Since the bulls twice failed over the past 2 weeks to reverse up from the bottom of the 3 month range, the odds are that the EURUSD will sell off to its 20 week EMA within a few weeks.
Overnight EUR/USD Trading
The 5-minute chart sold off 40 pips overnight, reversing Thursday’s rally. This is therefore a selloff from a 2-week double top. Last week was an inside bar on the weekly chart after a 5 week selloff. It is therefore a Low 1 sell signal bar. The bears are trying to break below last week’s low to trigger the sell signal on the weekly chart. Last week’s low is just 4 pips below the current price and therefore the odds favor a break below last week’s low today.
However, last week was a doji bar and therefore a weak sell signal bar. In addition, the weekly chart is in a 4 week tight trading range. Consequently, this is a weak sell setup. Therefore there will probably be buyers instead of sellers below last week’s low. In addition, the weekly moving average is around the October low, which is about 50 pips below. Therefore, the odds are against a big bear trend.
Since the daily chart is in a 3-week tight trading range and it sold off from a double top overnight, the odds are against a big bull trend. As a result, today will probably be another trading range day.