– After 3 big bear bars and with the EURUSD still in an 11-month trading range, yesterday was not likely to be a big bear day. Instead, it was a big bull day.
– Yesterday’s high was below Friday’s high and its low was above Friday’s low. Yesterday was therefore a bull inside bar.
– That is a Breakout Mode setup. It is both a buy and sell signal bar for today.
– Since it was a bull bar in a sell climax, it is a weak Low 1 sell signal bar. There will probably be buyers not far below its low.
– For the bulls, they want the 3-day selloff to be a bear trap and a failed breakout below the May 5 bottom of a 2-month trading range.
– So far, today is inside of yesterday’s range. If it remains an inside day, there will be consecutive inside bars (ii), which is a more reliable Breakout Mode Pattern.
– An ii late in a bear trend usually either leads to a reversal up or it becomes a Final Bear Flag. That means if there is a bear breakout, it typically fails and the EURUSD reverses up within a few days.
– Since the 3 bear bars were surprisingly big, the 1st reversal up will probably be minor, even if it gets back above the bottom of the range at the May 5 low.
– Since EUR/USD has been in a trading range for 11 months, traders should expect disappointment. Consequently, the rally might go above the May 5 low without first forming a micro double bottom. This would disappoint the bears who want a bear trend.
– Whether or not it does, the bulls will probably need at least a small double bottom before they can get much above the June 16 sell climax high. The start of a sell climax is always a magnet when there is a reversal up.
– EUR/USD will probably be sideways to up for at least a couple days, and possibly for a couple weeks.
– Last week’s selloff was so strong that traders expect at least a small second leg sideways to down before there is a rally above the May high.
– There is a 30% chance that this will be a V-bottom and that EUR/USD will go straight up to above the June 16 high in June.
EUR/USD Trading On 5-Minute Chart
– Today reversed down from below yesterday’s high. So far, it is above yesterday’s low. It is, therefore, a second consecutive inside day.
– Today will probably not break far above or below yesterday’s range, so today will likely not be a trend day.
– Day traders so far today have been scalping in both directions
– If it remains a second inside day, the bulls will try to get it to close near the high. That would increase the chance of a rally over the next few days.
– The bears will try to get it to close near its low, increasing the chance of a bear breakout. However, the bears know that if today remains an inside day and there is a bear breakout, there will probably be a reversal up within a few days.