The Forex market on the daily chart has been in a strong bull trend since the Nov. 4 low. All bull trends repeatedly form wedge tops, but most tops fail and become bull flags. There have been many minor reversals over the past two months. Each lasted only one to three days. Until the bears get a strong sell signal bar and a strong reversal down, the bulls will continue to buy one- to three-day reversals.
The bears tried to get a reversal down three days ago, but they were unable to get a bear body. The past three days have had decent bull bodies. Traders are continuing to bet on higher prices.
The bulls want a break above last week’s high, a test of the top of the bull channel at around 1.24, and a test of the measured move target at 1.2409. The rally ultimately will reach the February 2018 high, but there will likely be at least one pullback lasting several weeks before the EUR/USD gets there. There is an increased chance of reversals in Forex markets in early January.
This rally might be too strong. It has lasted about 50 bars. That usually attracts profit takers. Once the bulls take profits, there will probably be a couple legs down over a few weeks. The first target is the start of the bull channel, which is the Dec. 9 low.
Overnight EUR/USD Forex Trading
The 5-minute chart of EUR/USD rallied strongly in the overnight session to last week’s high, sold off strongly from that high, and then had a weaker rally back up to last week’s high.
While the day is near the high of the session, it is a trading range day. Day traders have been selling and buying for 10- to 20-pip scalps.
Because of the strong reversal up from the strong overnight selloff, day traders are more interested in buying. That reversal up significantly reduces the chance of a bear trend day. However, the sharp overnight selloff reduces the chances of a strong rally from here. If the EUR/USD is not going to a new low, and it is not going far above the overnight high, day traders will look for reversals.
The bulls want today to close above last week’s high. That would increase the chance of the year closing at the high.
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