– EUR/USD is forming a second failed breakout of the 1.000 big round number following the Aug. 22 selloff.
– Bears were disappointed with the follow-through over the past four trading days. More bears are buying back shorts at the Aug. 22 close.
– The bulls see this as a second failed breakout of the 1.000 big round number and will see this as a great value buy to initiate new longs.
– The Aug. 22 four-bar selloff was strong enough for a second leg down, and the bulls are hopeful this is the second leg down.
– Traders need to be aware that the market may get a two-legged pullback where the rally up to Aug. 26 is the first push, and then after a second leg up, the market gets a second leg down following the Aug. 22 selloff.
– The bulls need today to be a good buy signal bar closing on its high. This would increase the odds of more bears exiting above and the bulls getting an upside breakout.
– At a minimum, the bulls see the past five trading days as a micro double bottom, and they want a breakout above the neckline (Aug. 26) high and a measured move up to the Aug. 11 low.
– Although the Aug. 11 low was the third push-up in a likely leg in a trading range, bulls would buy the low and scale in lower. They were confident that the market would return to this Aug. 11 low at some point, which is probably correct. Those bulls may scale in above today’s buy signal bar, assuming it closes on its high.
– Overall, traders will pay close attention to today’s bar. If it closes on its high with a big body, more bears will exit above due to the risk of a double bottom and measured move up the Aug. 11 high. If it closes as a weaker bar, the odds will favor a pullback in the bear selloff down to Aug. 22. That would increase the odds of the bears getting a larger second leg down from Aug. 22.
