EUR/USD: Double Bottom And Micro Double Wedge
Al Brooks | Oct 20, 2016 09:34AM ET
The daily chart of the EUR/USD Forex market formed a double bottom with the July 25 higher low. It has also formed a micro wedge over the past 6 days.
Because the 240 minute EUR/USD Forex chart stabilized yesterday after breaking to a new low, bulls are trying to create a wedge bottom reversal. Yet, they need a good buy signal bar or a strong bull breakout. Their 1st target is the top of the wedge at 1.1050. Since the bears are losing momentum, it likely that the bulls will get a two legged rally over the next couple of days.
While the bears know that a strong breakout below the July and June lows in unlikely, they will continue to try until the bulls create a credible reversal. Yet, if the bears succeed, they will try to extend the breakout to below the December 2015 low of 1.0539.
h3 Overnight EUR/USD Forex sessions/h3The daily chart formed an exact double bottom with the July 25 low of 1.0951. The target for a bear rally is the top of the 6 day wedge at 1.1057. For those lucky enough to buy with a limit order a few pips above, they are now risking about 4 pips to make about 100 pips. While the probability is only about 40% if a trader puts his stop below the double bottom, that still creates a strong trader’s equation. If he uses a stop 10 – 20 pips below, his probability might be 50% or more.
What happens below the double bottom? There is a 50% chance of a breakout and swing down. Furthermore, there is a 50% chance of buyers below and then another bottom attempt.
Just having a micro double bottom and a double bottom is not enough. The bulls need a strong reversal up. In the 7 hours since reversing up, the EUR/USD is up only 17 pips. Hence, it is still in a bear channel on the lower time frames. Since the bulls have spent a long time overnight and have been unable to left strong up from support, the probability is that the EUR/USD will fall below the double bottom. At that point, there would probably be either a strong move up or down.
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