EUR/USD Small Head And Shoulders Bottom At Support
Al Brooks | Jul 25, 2016 08:50AM ET
The 5 minute EUR/USD Forex chart turned up from a small Head and Shoulders Bottom (HSB) overnight. All HSBs are Higher Low Major Trend Reversals (HL MTRs).If the rally extends to about 100 pips, the monthly trading range would then become a triangle.
The EUR/USD daily chart has been in a bear trend for 3 weeks. The bears want this to be the start of a trend that will accelerate down below the yearlong trading range. The bulls see this 3 week bear trend as two legs down in a 5 week trading range.
When a bear trend lacks consecutive big bear trend bars and has many bars with small bodies and prominent tails, it is more likely a leg in a trading range than the start of a strong bear trend. The odds are that the daily chart is probing for the bottom of the trading range. That bottom might be around the current price or even below the June 24 big bear breakout.
h3 Long-term support/h3The next support is the 1.0821 bottom of the March 10 huge bull breakout day. As long as the bulls are able to keep the selloff from falling below that support, they have a good argument that the selloff is a pullback from that rally.
The next support is the bottom of the pullback from the December 3 huge bull trend day. That pullback was on January 5, and its low was 1.0710. The EUR/USD can still fall below that support and yet still be in the trading range that began with the March 13, 2015 sell climax.
Trading ranges always have many levels of support. Rallies usually only come after a test of, and often a break below, a major support level. Until there is a strong breakout fall below support, the probability favors a reversal. Hence, this month-long selloff will probably reverse up soon. While the bulls will probably take control, the rally will probably just be another bull leg in the trading range and not a bull trend.
h3 Overnight Forex trading/h3While the 5 minute chart turned up from a Higher Low Major Trend Reversal, the pattern was only 20 pips tall. More noteworthy is that the chart is near support and a small pattern can be the start of a move up on the daily chart. After 3 pushes down on the daily chart, the bulls want a reversal up.
h3 FOMC Report on Wednesday/h3Wednesday’s FOMC announcement is a catalyst and it could lead to a big move up or down in all financial markets. While the EUR/USD daily chart has been trending down for a month, the selloff has been weak and within a trading range. A rally after the report is more likely than a bear breakout below a bear channel.
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However, a strong bear breakout could become a measuring gap. Hence, the EUR/USD could quickly fall 200 pips and get near the bottom of the 15 month trading range.
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