EUR/USD: 200 Pip Breakout
Al Brooks | Jul 27, 2016 09:40AM ET
FXCAPTION
The EUR/USD Forex daily chart has had a weak selloff after the July 5 pullback from the bear breakout. Traders see the overlapping bars with big tails and an absence of consecutive big bear bars, and conclude that the selloff is weak. This is more common in a trading range and less common in a bear trend.
The daily chart is near the bottom of its month-long trading range. Hence, it is at support. This is an inflection point and today’s report is a catalyst. As a result, the odds of either a reversal up or a bear breakout are higher today. Since most trading range breakouts fail, the odds slightly favor the bulls. Yet, traders believe that the EUR/USD became neutral going into the report. Therefore, the odds are very close to 50-50 for the bulls and bears.
The day will probably trade like any other day for the 1st several hours. Given that so much trading over the past month has been trading range scalping, this is most likely today. The market usually will enter a tight trading range about an hour before the report.
h3 FOMC report/h3The FOMC report comes out today at 11 a.m. PST. There is a 50% chance that the breakout after the report will reverse in the 1st 10 minute. Therefore most day traders should wait at least 10 minutes before taking a trade after the report.
The report usually leads to big bars. This means that the market is moving quickly and it forces traders to make quick decisions. As a result, this adds to the risk because traders can make more mistakes. Because the bars are big, stops are far. Therefore, traders should reduce their positions size.
Because the U.S. stock market will probably correct at least 30 – 40 points over the next few weeks, and possibly 5%, all financial markets will probably have strong breakouts up or down. The EUR/USD could go either way. Today’s report will probably begin the process. Yet, the first breakout, which might last a few days, has a 50% chance of failing. If it does, it might lead to an even bigger opposite breakout.
h3 European EUR/USD Forex session/h3The EUR/USD Forex market has been in an exceptionally tight 25 pip range overnight. Most traders should wait for bigger legs before resuming trading. That will come today, but it might wait for the 11 a.m. FOMC report.
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