The EUR/USD forex market on the daily chart is again testing the neck line of the 4 week head and shoulders top and the bottom of the 8 week trading range. I have been saying that a tight trading range is neutral, but because of the wedge buy climax to resistance on the weekly chart, this one has a slightly higher chance of a bear breakout.
The bears want a pullback to the June 10 high. That was the breakout point for the July rally and it is about a measured move down. It is therefore a magnet below. The June 19 low was the start of the strong July rally. It, too, is a magnet if the EUR/USD starts to work lower.
With the Fed saying that it wants to increase inflation, that will result in increased interest rates in the US. Money from around the world will get drawn to the US to get higher returns. If so, those foreign currencies will be converted to dollars. That demand for dollars could be the catalyst for a fall in the EUR/USD.
Overnight EUR/USD Forex Trading
The 5 minute chart of the EUR/USD forex market traded above Friday’s high and reversed won strongly to below Friday’s low. Today is therefore an outside down day.
The EUR/USD is now testing the bottom of the 8 week tight trading range. This increases the chance of a bear breakout this week and then a move down to at least 1.1422 at the June 10 high.
Trading ranges resist breaking out. The bulls will therefore try to stop the overnight collapse. But when a selloff is as strong as this one has been, the best the bulls can usually do is convert the strong bear trend into a trading range.
Day traders overnight sold aggressively during the collapse. Although there was some profit taking for a few hours, the bulls took quick profits. Day traders have been selling. It will continue to be better to only sell until the EUR/USD enters a trading range.
But even if it does, if today closes near the low of the day, it will increase the chance of a successful break below the 8 week trading range and a quick move down for 300–500 pips.
At some point today, traders will begin to take profits at the low and then only sell again after a 20–30 pip bounce. If the bulls get that bounce, they will start to buy reversals up for scalps. However, it will probably be easier all day for sellers than buyers to make money.