EUR/USD Breaking Above 2 Month Trading Range. What To Watch
Al Brooks | May 27, 2020 09:04AM ET
The EUR/USD Forex market on the daily chart today is breaking above the top of a 2-month trading range. That is also the neckline of a head and shoulders bottom. The bulls want a measured move up and then a test of the March high.
In general, if there is a close above the neckline, there is a 50% chance of a swing up and a 50% chance of a failed breakout and a reversal down. If the close is far above, the odds improve for the bulls. Furthermore, if the bulls get consecutive closes above, the math is even better. Finally, if they get consecutive big bull bars closing on their highs and above the trading range, there will be a 60% chance of a measured move up.
At the moment, the bulls have none of that. But they might get all of it over the next few days. Therefore, what happens over the next several days can change the expectation of traders for the next month or more.
The bears want a bear bar closing near its low at some point this week. If they get it, traders will conclude that the breakout is failing. They then will look for a reversal down to the middle or bottom of the 2-month trading range.
There are 3 trading days left to May. I talked about the ioi (inside-outside-inside) Breakout Mode pattern on the monthly chart over the weekend. The bulls want the month to close on its high, whether or not it goes above the April high and triggers the buy signal. If it closes on its high, traders will see May as also a buy signal bar for June.
h3 Overnight EUR/USD Forex trading/h3The 5-minute chart of the EUR/USD Forex market rallied overnight to just above the May 1 high. It then pulled back below that high. This is not how the strongest breakouts behave. It is a reminder that the daily chart has been in a trading range for 2 months and most breakout attempts fail.
Today’s close is important. The bulls will buy pullbacks because they want today to close above the top of the trading range on the daily chart. That would increase the chance of higher prices tomorrow. They want tomorrow to close even higher.
The bears always want the opposite. They will sell at the May high and at today’s high and try to get the breakout to fail. They then want today or tomorrow to have a bear body and close near its low. That would increase the chance of a reversal down over the next couple of weeks.
Can today be a big trend day up or down? It does not look like it. Instead, the day will probably close around yesterday’s high and be a small bull day, or it will close near the open and be a doji day.
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