Look For EUR/USD Rally

4-Hour EUR/USD

The EUR/USD 240-minute Forex chart has a Micro Double Top and Micro Double Bottom over the past 2 days. Traders are deciding whether the big bear breakout last week is a Measuring Gap or an Exhaustion Gap. It was a strong enough breakout so that a 2nd leg down is likely. Yet the small selloff overnight might be that 2nd leg. It doesn't have to fall below Friday’s sell-climax low.

Because the sell climax was exceptionally big and it formed late in a bear trend, it will more likely be an exhaustive end of the August bear trend that started on August 2. However, the trend has been in a tight channel and it is still probably just the 1st of 2 legs sideways to down from the wedge top. Since trading ranges are resistant to change, the odds are that the EUR/USD will continue in its 6-week and 2-year trading ranges. Furthermore, this leg down will probably end this week. Yet, the rally will then be a bull leg in the trading range that has been forming since the July 28 1st pullback in the wedge rally.

Spike And Channel Wedge Top: Trading Range Likely

The 60-minute EUR/USD Forex chart had a Spike and Wedge Bull Channel last week. While Friday was a 2nd leg down and it might have ended the pullback, the selloff on Friday was strong enough so that at least a test back down will probably come on Monday. Yet, there is still a 40% chance that Friday is actually a measuring gap instead of an exhaustion gap. Therefore, the selloff could continue to below the July 27 bottom of the bull reversal without first having a swing up.

When there is a clear Spike and Channel top like this, there is a 60% chance that the reversal down will be a bear leg in a trading range. Hence, it is typically followed by a swing up. The first target for the bulls is the 1.1161 top of Friday’s sell climax. Bulls will be looking for a bounce today or tomorrow. Since traders expect a trading range this week, day traders will be quick to take profits unless there is another strong breakout, like on Friday.

European EUR/USD Globex Session

The EUR/USD stayed in a small range overnight. It will probably break out of its 2-day range today or tomorrow. A downside breakout will probably only last a day or two and then reverse up. An upside breakout will probably retrace at least 50% of the selloff.