EUR/USD: At A Critical Level

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.

EUR/USD Daily

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.

This site uses cookies to offer you a better browsing experience. By browsing this website, you agree to our use of cookies.