Al Brooks | Jul 16, 2019 11:26AM ET
The EUR/USD daily chart is turning down from a lower high. I said last week that this was likely. The 3-week bear channel was tight. Consequently, the 1st rally was likely to be minor. That means traders expected a test of the low of the selloff.
The bears see this lower high as the right shoulder of a head and shoulders top. The June 12 high is the left shoulder. However, the pattern is in a trading range and most breakouts fail. Consequently, there will probably be a reversal up from either the June or May lows.
On the weekly chart, the June rally was the strongest one in a year. It broke above the bear trend line and the 20-week EMA. It is likely to have at least a small 2nd leg sideways to up. Therefore, this selloff will probably not lead to a resumption of the yearlong bear trend. Instead, traders see it as a bear leg in the 5-month trading range. But if the bears get consecutive closes below the May low, they will conclude that the bear trend has resumed.
h3 Overnight EUR/USD Trading/h3The EUR/USD 5-minute chart sold off 50 pips in a tight bear channel overnight. Traders have only been selling. Once the selling stops and the chart begins to go sideways, the bulls will begin to buy for scalps. However, it will be easier to make money as a bear today and tomorrow.
When a channel is tight, there is much less chance of a bull trend reversal. This is because it is a Bear Surprise Bar on a higher time frame chart, like the 60-minute chart. A surprise typically has at least a small 2nd leg sideways to down.
Also, there is still room to the June 9 low, which is last week’s low. I said yesterday that the buy signal bar on the weekly chart was small. There was consequently a 50% chance of the buy signal failing and of the bulls getting a 2nd buy signal within a couple weeks. That is still true. Last week’s low is about 20 pips below the overnight low and it is a target for the rest of this week.
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