The EUR/USD daily Forex chart broke strongly below last week’s bottom attempt. But, a reversal up from here would be a nested wedge bottom.
The EUR/USD daily Forex chart is forming a big bear bar today when a reversal up was more likely. This is a Bear Surprise Bar. Surprise Bars trap bulls into bad longs and bears out of good shorts because traders tend to bet in the direction of higher probability. Consequently, many bulls will sell out and bears will short on the 1st bounce. This typically results in at least a small 2nd leg sideways to down.
While the probability is still that the bulls will get a reversal up from above the August 15 low, it is now close to 50%. If the bears break below that low, there is a 60% chance of a failed breakout and another reversal up.
The bears need consecutive big bear bars closing below that low before traders will believe the the breakout will lead to a swing down. They would see the chart as having a double top with the July 9 and September 26 highs. Because that pattern is 500 pips tall, the target would be 1.08.
Nested Wedge Bottom
There is a wedge bottom with the September 10 and October 9 lows. In addition, there is an 8 day wedge in the 3rd leg down. This is a nested wedge, which has a slightly higher chance of a reversal up. But, the bulls will probably need a micro double bottom and a good buy signal bar within the next few days before they can get their reversal up.
The bears want today to create a measuring gap for a 200 pip measured move down. That would result in a breakout below the August 15 low. Since the chart is near the bottom of a 6 month trading range, reversals are more common than successful breakouts. Consequently, the odds are that the month-long selloff will reverse up. This is true even if the bears get a break below the August 15 bottom of the 6 month range.
Overnight EUR/USD
The EUR/USD 5-minute Forex chart sold off 100 pips overnight. Since the chart has a wedge bottom, it will try to reverse up for a couple of legs over the next 2 hours. But, since the selloff was surprisingly strong, the best the bulls will probably get today is a 50 pip tall trading range.
The selloff has been in a wedge channel on the 5 minute chart over the past 5 hours. In addition, the low is at the bottom of wedges on the daily chart. This reduces the chances of much lower prices today. Therefore, the 5-minute chart will likely transition into a trading range today.