The daily Forex chart has been sideways in a tight trading range for 5 days. The bulls want a 2nd leg up from last week’s reversal up from the bottom of the bear channel. Their minimum goal is a test of the top of the channel.
Since that is only 30 pips above today’s high, the should achieve that goal this week. When the market gets close to an important magnet, it usually cannot escape the magnetic pull. The test can come from either a small rally or by another couple days of sideways trading.
Because the daily and weekly charts have been in a weak bear channel for about 2 years, traders expect a lot of trading range price action. That means markets typically go beyond support or resistance before reversing. Also, this 2-week rally has been smaller than most other rallies. Traders should expect a test of higher resistance, like the September 3 lower high of 1.1110 before there is another new low.
The 5-minute Forex chart rallied 35 pips early in the European session. It has been sideways for 5 hours. This is probably going to be a bull flag. Traders should expect at least a small 2nd leg up.
However, it is now near the top of the 5 day tight trading range. That means it is around a price level where it has turned down many times over the past week. Consequently, the 2nd leg up might be small. This is true even though the two week weak rally will likely go at least another 30 pips above today’s high within a few days.
When a rally tests resistance and there is other resistance not far above, it usually breaks through the 1st level. As a result, the rally will probably continue up for another 100 pips at some point in the next couple weeks.
But the bulls need a strong breakout above the 5-day tight trading range. Until they get it, day traders will continue to scalp. Since the biggest pullback in the past 10 hours has only been 15 pips, day traders are mostly only looking to buy. They will not sell until there is a clear top or a strong reversal down.
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