EUR/USD: Tight Trading Range And H&S Bottom Ahead Of FOMC

Today we have the FOMC statement report at 11 am PT. That usually results in a sharp move in both directions within the first 10 minutes. Therefore, day traders should exit ahead of the report and wait at least 10 minutes before day trading again. A FOMC statement report is sometimes a catalyst for a big move that can last for several days.

So far today EUR/USD is having a small inside day, with the past 2 days also small after consecutive big bear bars were closing near their lows. That is a Bear Surprise Breakout, and there is typically at least a small 2nd leg sideways to down. That 2nd leg is sometimes just a single bar.

If we have a sell off today that reverses up, it will create a micro double bottom with Monday’s low. If today then closes near its high, it would be a buy signal bar. Traders would wonder if the Bear Surprise was simply a bear trap and another test of the bottom of the yearlong trading range. A reversal up would be a higher low major trend reversal. A major reversal setup with a good signal bar has a 40% chance of actually leading to a trend reversal. In 60% of instances, it leads to a continuation of the trading range or a resumption of the selloff.

Additionally, it would be the right shoulder of a head and shoulders bottom. The Aug. 11 low would be the left shoulder and the Aug. 20 low would be the head.

Markets have inertia. They tend to continue what they have been doing.

EUR/USD has been in a 200-pip trading range for 4 months. That trading range is at the bottom of a 700-pip yearlong trading range. Since its near the bottom of both, there is an increased chance of a reversal up within a few weeks. It could come at any time. There might be a dip first below the Nov. 4, 2020 bottom of the range.

Traders will need a couple of big bear bars closing on their lows and below that low before concluding that the bear breakout was likely to succeed.

EUR/USD Daily Chart

EUR/USD Daily Chart

EUR/USD: Tight Trading Range And H&S Bottom Ahead Of FOMC

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