The forex market on the daily chart has been in a strong bull trend since the Nov. 4 low. It reversed down for 2 days last week after a small wedge top.
However, today so far is a big bull day after a big bear day, and today’s open is near the top of Friday’s bear body. This is a special type of bear trap, and it usually leads to higher prices if the bull bar closes near its high. It would be even better for the bulls if today can close 20 or more pips above last week’s high.
If it does not, the bears still might get a double top with last week’s high and a reversal down. Today would then be a bull trap after Friday’s bear trap.
There is a measured move target at 1.2409, which is based on the height of the August through November trading range. A more important target is the February 2018 high of 1.2555 (not shown). There is a 50% chance that this rally will get there without more than a 5-day pullback.
Overnight EUR/USD Forex trading
The 5-minute chart of the EUR/USD Forex market opened near Friday’s open, which is the top of Friday’s bear body on the daily chart. It then rallied in a Small Pullback bull trend overnight. Traders have only been buying.
The EUR/USD is now back again at the top of its 3-week trading range. Because of the bear trap on the daily chart, traders expect higher prices this week. But if the bulls cannot break above the 3-week trading range, traders will then expect another leg down in the range.
The overnight rally was a Trending Trading Range type of bull trend. There was an early tight trading range, a breakout, and then a 2nd trading range. The height of the trading ranges is small. Therefore, day traders have only been buying.
But because the range is so small, day traders have had a difficult time making even only 10 pips over the past 4 hours. They will continue to only look to buy until the bears can create at least a 20-pip leg down. They will also sell if there is a breakout above the range that reverses down, or a 30-pip bear breakout below the range.
The bulls will be satisfied if today closes around where it is now. There would then be a strong bear trap on the daily chart. The bears want to weaken this buy signal by creating a conspicuous tail on top of today’s candlestick. They will need the day to close at least 20 pips down from the high.
Can today reverse down? Since the EUR/USD is at the top of a 3-week trading range, a reversal down can come at any time. But the bear trap makes it more likely that the EUR/USD will close near the high of the day.