The EUR/USD 60-minute chart tried to bounce last week, but the bottom failed and there has been a strong bear breakout over the past 6 hours. The NYSE opens in 30 minutes. The breakout was a low probability event, which means that there are bulls who are trapped in and bears who are trapped out. Both will look for a bounce to sell. The bulls want to sell out with a smaller loss and the bears want to get short, knowing that there is at least a 60% chance of a 2nd leg down after any bounce.
The overnight selling has been in the form of a series of sell climaxes, which usually is followed by a trading range. However, the bounces after the breakouts stayed below the breakout points until a couple of hours ago, which means the the momentum down is still strong and the odds of much of a rally over the next couple of hours are small.
The rally from the 5:25 a.m. PST low went above the breakout point. This means that the bulls are starting to buy new lows and scale in lower, looking for scalps. It also means that the bears are taking profits at new lows instead of selling the breakouts. This is the first price action evidence that the breakout is weakening and that the EUR/USD 5-minute chart will begin to enter a trading range for 2 or more hours.
With the momentum down as strong as it has been, it will be easier for most traders to make money by selling rallies today. However, because the gap down from the 4:35 a.m. selloff closed, bulls will be confident that subsequent breakouts to new lows will also pull back above breakout points and they will look to buy new lows or 10 – 20 pips below prior lows for 10 – 20 pips scalps.
Bears will sell 20 – 50 pip rallies, knowing that the best the bulls can probably get over the next several hours is a trading range and not a bull trend.