The Forex market on the daily chart is at the bottom of a 2-month trading range. Traders are looking for a breakout below or above, and then a 300-pip measured move.
Every trading range has both a buy and a sell signal. The bulls see a triangle bull flag since the Jan. 6 high. The bears see a head and shoulders top, which is also a lower high major trend reversal.
The EUR/USD has been testing the bottom of the range for 3 weeks. Today’s low so far is only a couple pips above the January low, which is the bottom of the range. Therefore, the EUR/USD might break below it today.
But the bears need more than a break below the range. Traders want to see consecutive closes below the range before they conclude that the breakout is probably going to be successful.
Sell signal on the monthly chart
There is a sell signal on the monthly chart (not shown today), which will trigger if the EUR/USD falls below last month’s low (the January 1 low). Since January had a bear body on the monthly chart and there is a wedge rally to a double top on the monthly chart, traders want to see if there are many sellers below last month’s low. That means that the EUR/USD should at least dip below the Jan. 1 low. It might do it today.
Remember, last month’s low is the bottom of the 2-month trading range on the daily chart, and the neckline of the head and shoulders top. The pattern on the monthly chart makes it more likely than not that the EUR/USD will continue down.
As I wrote over the weekend, the next target is the Sept. 1 high, which was the breakout point for the December rally. A more important target on the monthly chart is the November low of 1.1603. That is the bottom of the most recent leg up, which is always a target when there is a reversal down.
Overnight EURUSD Forex trading
The 5-minute chart of the EUR/USD Forex market sold off to below yesterday’s low. It got to within 2 pips of the January 1 low and then stalled. There is a 50% chance that today will break below that low.
At a minimum, the bears want a bear body today after yesterday’s big bear day on the daily chart. If the bears get a bear follow-through bar today, it would increase the chance of at least slightly lower prices tomorrow.
But the bears want more. They would like today to be a big bear trend day closing on its low, and closing far below the January 1 low at the bottom of the trading range. Because of the bounce from just above that low and the unremarkable range today, the bears will probably not get all that they want. But they will try to have today close below the open of the day.
The bulls hope that the selloff is just a test of support. But they need a strong reversal up over the next few days to convince traders that the bull trend on the daily chart is resuming.
So far, today is a bear trending trading range day. That reduces the chance of a big move in either direction from here. However, the bears will sell rallies, and try to get today to close on its low, and at least below the open. And the bulls will buy reversals up, hoping for a reversal day and a close above the open.
Unless there is a series of trend bars from here in either direction, traders will assume that the 2-hour trading range will continue. That means they will be scalping until there is a clear breakout.