The EUR/USD daily Forex chart sold off strongly to the bottom of the 4-month trading range. Since trading ranges resist breaking out, the odds favor a bull leg in the trading range.
The chart has rallied for 2 weeks in a bull channel. That channel is a micro wedge and the selloff was strong. Both factors make a test of the low likely. Therefore, the rally will probably exhaust itself in the next few days. The bulls will take profits, which will create a leg down. Because trading ranges resist breaking out, the bulls will buy again below 1.13. That will probably result in a 3 – 4 week rally from last week’s low.
The bears hope that the 2 week wedge rally is a bear flag. They will sell it, hoping for a strong break below the November low. But, trading ranges have many strong legs up and down and most reverse. Consequently, that is what is likely here.
All trading ranges on the daily chart over the past 2 years converted into trends within a couple months. Therefore, this one is overdue. As a result, traders expect a breakout up or down anytime soon, and then about a 300-pip measured move.
Overnight EUR/USD Trading
The EUR/USD 5-minute Forex chart formed an expanding triangle overnight. This is a Breakout Mode pattern. In addition, the 5-minute chart has been sideways for 3 days. The legs have been big enough for 20 – 30 pip scalps.
Since the 240-minute chart is in its 3rd leg up in a wedge rally, the odds favor profit taking within a couple of days. Therefore, if there is a bull breakout above the triangle, the bulls will probably take profits around 1.14. That is about a 50% retracement of the February selloff. If the bears get a reversal down, they will take profits below 1.13.
If today goes above yesterday’s high, today will be another outside up day, like Tuesday. However, the odds are that the 2-week tight trading range will continue today. There will be sellers above yesterday’s high, just like there were buyers below yesterday’s low.