EUR/USD: Weak Breakout Below Double Top
Al Brooks | Feb 28, 2018 11:01AM ET
The EUR/USD daily Forex chart broke below the neck line of a 2-month double top. The bulls want a reversal up from a failed breakout below the 2-month trading range. That would create a lower low double bottom with the February 9 neck line of the double top.
Last night, the EUR/USD daily Forex chart broke below the February 9 neck line of the 2-month double top. Therefore, the next few days are important. Will the breakout succeed or reverse back up?
If today becomes a big bear day and then tomorrow is also a bear day, traders will conclude that the breakout will be successful. They will then look for a 300-pip measured move down to around the January 9 low and 1.1500. That would also be below the top of the 2015 – 2016 trading range, which is the next major support.
On the other hand, breakouts below and above trading ranges are common, but most fail. Markets have inertia. This means they resist change. Therefore, trading ranges resist breaking into trends (and trends resist reversing). For traders to conclude that this breakout is failing, the bulls need a reversal back up over the next few days.
h3 Wedge Bear Flag On Monthly Chart/h3The January rally is the 3rd leg up in a wedge bear flag on the monthly chart. The 1st leg up was the May 2016 high. Since the monthly chart is still in a bear trend, the bears want a selloff to the bottom of the wedge, which is the 2017 low at around 1.0350. At the moment, that is unlikely. Furthermore, it is so far below that it would probably take more than a year to get there.
h3 Overnight EUR/USD Forex Trading/h3
The EUR/USD 5-minute chart broke below its 4-day bear flag yesterday. Yet, there has been little follow-through selling overnight. The bears are not aggressively selling below the neck line of the double top on the daily chart. This is evident by the 40-pip trading range of the past 6 hours.
Because the daily chart spent 7 days at this level in January and 3 days here in early February, traders think this is an area of fair value. Consequently, the market will probably go sideways around 1.2200 for a few days. It will then decide between another leg down, which would a continuation of the breakout, and a reversal back up.
Since reversals are more common than successful breakouts, the odds favor a 200 pip rally within a few weeks. Therefore, the bulls will look for a buy setup on the daily chart or for a strong reversal up on the 5-minute chart.
Get The News You Want
Yet, there is a 40% chance of a swing down. The bears will look for rallies to sell, or they will sell a strong bear breakout, like they did yesterday. Since the breakout is stalling in a support zone, the odds are that today will be a small trading range day.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.