EUR/USD: In Breakout Mode?

The forex market on the daily chart has both a double top, and a double bottom over the past 4 weeks, and this small trading range is at the bottom of a 2-month trading range. The bulls want trend resumption up to above the January high. The bears want a breakout below. Both expect a 300-pip measured move, based on the height of the 2-month trading range.

EUR/USD Daily

When a chart is in Breakout Mode, there is a 50% chance of a successful bull breakout, and a 50% chance of a successful bear breakout. The chart is slightly bullish for a few days, and then slightly bearish. But traders take quick profits because they can see that the market reverses every few days.

Since the EUR/USD is at the bottom of the 2-month range, and yesterday had a bull body, traders expect a bounce. Yesterday was a bull inside day, and a buy signal bar for the 4-week double bottom. The EURUSD went above yesterday’s high overnight, which triggered the buy signal. But will today race up to above the January 22 high? Probably not.

Today is the last trading day of the week and of the month. Weekly and monthly support and resistance can be important, especially at the end of the day. So far, this week and this month have small bear bodies. The bulls want today to rally enough so that both will have bull bodies by the close.

However, the open of the week and the open of the month, are probably too far above for the bulls to achieve their goals. But if the bear bodies remain small, which is likely, they only slightly increase the chance of lower prices next week. The chart will still be relatively neutral.

Overnight EUR/USD Forex trading

The 5-minute chart of the EUR/USD Forex market sold off and then reversed up overnight, but the range is small. So far, this is not the start of a strong bull trend.

However, by going above yesterday’s high, the EUR/USD triggered a minor buy signal on the daily chart. If the overnight bull trend continues up to above the January 22 lower high, the bulls will look for continuation up next week. But with the EUR/USD being in a small trading range for 4 weeks, today will probably not be a big bull day.

Since the overnight rally has been in a tight bull channel, day traders have only been buying. They will probably look to buy all day today. But a weak rally typically converts into a trading range.

Once there is a 20- to 30-pip pullback, traders will conclude that the bull trend evolved into a trading range. At that point, day traders will also look to sell. Since a strong reversal down is unlikely after the reversal up, the bears will only scalp. If the chart evolves into a trading range, the bulls will switch to buying 20-pip pullbacks, instead of buying High 1 and High 2 bull flags near the high.

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