The gap on the EUR/USD daily chart above Tuesday’s high and last week’s tight trading range is still open. It therefore is still a measuring gap. Yet, the follow-through selling was weak. In addition, the chart is in a 6-month trading range and at the bottom of a bull channel.
While the momentum down 2 weeks ago was strong, it was weak last week and after Friday’s bear breakout. Since the daily chart is in the middle of a 6-month trading range, the odds are that the bears will be disappointed. Consequently, the gap below last week’s tight trading range will probably close. Hence, that gap will probably be an exhaustion gap. Furthermore, the bear rally will probably test the top of the tight trading range. Hence, the odds favor a 100 – 150 pip bear rally over the next few weeks.
Since there is still room down to the February 22 major higher low and it is a magnet, the EUR/USD market might fall to 1.0500 before it rallies to last week’s high of around 1.0700. Yet, 80% of trading range breakout attempts fail. Therefore, the odds still are that this is still just a leg in the 6 month trading range.
Overnight EUR/USD
The EUR/USD Forex market has been in a 10-pip range for the past 3 hours. Furthermore, it has been in a 30 pip range for 28 hours. It is in breakout mode. Until there is a breakout, day traders will continue to scalp.
If there is a strong reversal up that closes the gap, traders will swing trade for a test of last week’s tight trading range. If there is a bear breakout, traders will hold for a test of the 1.0500 February 22 higher low. Yet, the bulls will look for a reversal up from there.