The forex market on the daily chart has been sideways for 2 months. A trading range constantly forms new buy and sell setups, but most fail. Until there are consecutive closes above or below the range, traders will continue to bet on reversals.
The bulls formed a head and shoulders bottom last week. After breaking above the neckline, the EUR/USD reversed down and is testing the bottom of the right shoulder. The bulls now want a double bottom for the right shoulder.
The bears see last week’s reversal as a lower high major trend reversal, and a failed breakout below the neckline of the head and shoulders bottom. They want today to fall at least a couple pips below the Feb. 17 right shoulder. That would increase the chance of a test of the Feb. 5 bottom of the trading range.
It is important that last week was a sell signal bar on the weekly chart. Today triggered the weekly sell signal by going below last week’s low. While the EUR/USD has been sideways for 2 months, there is a clear wedge top. The odds slightly favor a bear breakout, and a test of the November low of 1.16 over the next couple months.
Overnight EUR/USD Forex trading
The 5-minute chart of the EUR/USD forex market sold off sharply overnight, but it stopped 1 pip above the Feb. 17 low. It has been sideways in a 20-pip range for the past 2 hours. The bears are hoping that this is a bear flag, and want trend resumption down. If today falls far below that low, especially if today closes on its low and far below that low, traders will look for a break below the Feb. 5 low.
Because the biggest bounce has only been 20 pips, day traders cannot make money yet buying with stops. The should wait for a reversal up from the bottom of the range, or for a strong break above the range.
However, with the range being so tight for 3 hours, bear day traders are not making money either.
When a range is tight like this, it is difficult to make 10 pips with stop entries. Most traders should wait for a small bear reversal bar near the top, to sell or for a small bull reversal up from the bottom to buy. Or, wait for a clear breakout in either direction.
Because the EUR/USD is at a critical price, and in a trading range on the daily chart, there normally would be an increased chance of a reversal up. But with the earlier selloff as strong as it was, the bulls will have a difficult time getting a big reversal today.