The EUR/USD weekly chart is forming a micro double bottom at the bottom of a 2-year trading range. The location is good for the bulls, and the momentum is good for the bears.
The EUR/USD daily chart reversed down from a wedge bear flag last week. Because it broke back above the bottom of the 4-month trading range, traders are less confident that the bears are in control. They should have prevented the rally from breaking above resistance. Furthermore, as strong as the selling was, it failed to fall below last week’s low.
As a result, the bulls are hoping that the EUR/USD will form a higher low major trend reversal on the 240-minute chart. If it falls below the 3-week range, they will try for another reversal up. That would form a larger expanding triangle on the 240-minute chart.
Monthly EUR/USD Bear Flag
The bears want Thursday’s break below the bear flag to be the resumption of the November selloff. Yet, unless the EUR/USD falls strongly below last week’s low, the odds are that the 2-year trading range will continue. If the bears get a measured move down from the 350 pip tall trading range over the past 3 weeks, the EUR/USD will fall below low of the past 2 years. That would also therefore be a new 14-year low. It will also increase the chances of the EUR/USD falling to par (1.0000).
Breakout Mode
The EUR/USD weekly chart broke strongly below an 18-month triangle in November. Yet, it has been finding support at the bottom of the 2 year trading range. The momentum and therefore near-term probability favors the bears. They see the 4-week trading range as a bear flag. Because the stop is above the November bear sell climax, the risk is big. Therefore, the risk/reward is bad.
The bulls have low risk because their stop is below the bottom of the range, which is close. Their reward is also big, since it is to the top of the range.
Because the math is balanced between the bulls and bears, the EUR/USD is in breakout mode. Since this Wednesday is an important catalyst, there could be a strong bear breakout or bull reversal this week.
Overnight EUR/USD Forex
The EUR/USD rallied 80 pips overnight. This is an attempt at a major trend reversal up on the 240-minute charts. This is a reasonable swing long for the bulls with the stop below the overnight low. The overnight range is big enough for day traders to scalp for 10 – 20 pips today
As is the case whenever there is a trading range, it is also reasonable to be swinging a short trade. The swing stop for the bears is above last week’s high or the November high.