The EUR/USD 2 week rally is turning down from the bear trend line at the top of the 3 month triangle. Furthermore, the rally is a wedge, which increases the chance of 2 legs down.
The EUR/USD daily Forex chart has been in a triangle for 3 months. It turned down overnight from a wedge rally that began on April 2. If today closes near its low, it will be a sell signal bar for tomorrow. Traders will then look for 2 legs down over the next couple of weeks.
Since the daily chart has been sideways for 4 months, there have been many buy and sell signals. Yet, despite how strong the legs were, all of the breakout attempts have failed. This is because markets have inertia. They have a strong tendency to keep doing what they have been doing. Consequently, the wedge top is unlikely to lead to a bear break below the range. Traders will continue to take profits after 1 – 2 weeks.
However, the trading range is now in a triangle. The range is getting tight. That increases the chances of a breakout within the next few weeks. The 1st breakout has a 50% chance of failing and reversing. Once there is a successful breakout, there is a 50% chance it will be up and a 50% chance it will be down.
Overnight EUR/USD Forex trading
The EUR/USD 5 minute Forex chart reversed down more than 60 pips overnight. If today simply goes sideways here, today will be a bear reversal bar on the daily chart. The reversal down was from a wedge and near a bear trend line on the daily chart. If today closes near its low, today would be a strong sell signal bar for tomorrow on the daily chart.
However, if today rallies about 30 pips by the end of the US session, the bar on the daily chart will have a big tail below. This will lower the probability of a swing down over the next 2 weeks. Instead, the chart will more likely go sideways for at least 1 – 2 more days.
The momentum down overnight has been good. However, the final leg down on the 5 minute chart was from a 2 hour wedge bear flag. That will probably be the Final Bear Flag. Therefore, the odds are that the next couple of hours will enter a trading range.
The target for the bulls is the top of the bear flag, which is up about 30 pips. If today closes there, the bulls will have weakened the daily sell signal bar. Tomorrow will then probably be sideways.
Alternatively, whether or not there is a 30 pip rally, if the bears can make today close near its low, tomorrow will probably trade down. While the overnight selloff has been in a tight bear channel, it is more likely to transition into a trading range after the wedge bear flag than to continue all day.