Plenty of trades in EURUSD despite long-term trend inertia, writes Al Brooks.
The EURUSD Forex market has been sideways for five months. There is no sign that the trading range is about to end. Since it is stalling at the bear trend line and the October high, it will probably be sideways to down for a week or two.
The EURUSD weekly Forex chart in October had the strongest rally in its two-year bear trend. Traders expected a second leg up to resistance (see below). Last week satisfied that minimum objective. The rally broke above the October high and the 15-month bear trend line.
However, this week formed a bear bar that closed near its low. It is therefore a Low 2 sell signal bar for next week. The Low 1 (end of the 1st leg up) ended on October 21. This increases the chance of a test of the November 29 low next week.
Has the 2 year bear trend ended?
Traders are deciding if the two-year bear trend has ended. The three-month rally is good for the bulls, but not good enough to convince traders that a bull trend is underway.
The chart has been sideways for five months. It is therefore in a trading range. Every trading range always has both reasonable buy and sell setups. But neither is high probability.
Markets have inertia. They resist change. Traders should expect breakout attempts to fail and for the trading range to continue. Eventually there will be a successful breakout up or down. But the current rally has not yet been strong enough to make traders believe that the bulls will finally get their breakout.
The bears have sold every rally for two years. They sold this one as well. Each selloff eventually resulted in a new low. But the bears quickly took profits and the bulls confidently bought every new low. That will probably happen again if the bears break below the October low.
The lack of momentum up and down and the reversals every two to three weeks make a continuation of the trading range most likely. There is no evidence that a strong trend up or down is about to begin.
Just as the bulls were disappointed by this week, the bears will probably be disappointed with the next couple weeks. Traders should not expect this week’s sell signal to quickly lead to a new two-year low. There should be at least a two- to three-week pause around the Nov. 29 low. The bulls would then try to get a reversal up from a double bottom.
Nothing has changed. This is trading range price action. Traders should expect reversals and disappointing follow-through after buy and sell signals.
What about next year?
The EURUSD has been in a tight bear channel on the monthly chart for two years. The first breakout above is typically minor. That means, once it comes, it probably will not last more than a few months.
Also, the two-year bear trend is a Spike and Channel trend. Traders expect an eventual rally to the beginning of the channel. That is the September 2018 high around 1.18.
They then expect a trading range. Since a trading range is at least 10 to 20 bars and I am talking about the monthly chart, the EURUSD market will probably be sideways for the next year. The bottom will be around the October 2019 low of 1.0879 or slightly lower, like down to 1.08. And, the top might reach around 1.18.
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