EUR/USD: Bull Flag Forming, But Test of $1.10 Could Happen

The EUR/USD is forming a 2nd consecutive bear day. I said last week that the rally from the double bottom with the June 3 low would probably reverse down from a double top with the June 16 high. Then, traders would decide if there would be a test down to the breakout point, which is the May 1 high.

A pullback to a breakout point happens more often than not. Consequently, while the past 3 weeks are still forming a bull flag, there is a slightly higher probability of a test down to the 1.10 area before another attempt to go above the March high.

But if today or tomorrow reverses up strongly from the June 3/June 19 double bottom, the odds will again shift in favor of the bulls.

EUR/USD Double Bottom Bull Flag And Double Top Bear Flag

5-Minute Trading

On the five-minute chart, the EUR/USD has been selling off in a tight bear channel. Day traders are only selling because the bulls have been unable to make money.

The selloff is getting near the June 3/June 19 double bottom. This should make bears begin to take profits. If they do, the overnight bear trend will evolve into a trading range. Day traders will switch to selling rallies instead of at the market. Also, if there is a 20 – 30 pip bounce, day traders will begin to buy reversals up from the low for scalps.

A Small Pullback Bear Trend like this does not usually immediately reverse into a bull trend. Consequently, the best the bulls can get over the next few hours is a trading range. After a couple hours of sideways trading, they will have a 30% chance of a bull trend reversal into the end of the session.

While the overnight bear trend has been strong, the EUR/USD is now near the bottom of a 3 week trading range. It is probably going evolve into a trading range within an hour or so.

The bears hope that it will continue down far below the June double bottom. However, the lack of big consecutive bear bars means the downward momentum is not very strong. Therefore, a trading range is currently more likely than a strong breakout below the double bottom today.

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