The daily Forex chart rallied 200 pips over the past 4 days after a failed breakout below the 5 month trading range. There was both a month-long wedge bottom and a 4 month expanding triangle bottom. The momentum up is strong enough for traders to expect at least a small 2nd leg up over the next 2 weeks.
However, today so far is a big bear reversal day at the top of the 7 week bear channel and at the EMA. The bears want another lower high and then a new low. This rally would then be just another strong bull leg in the yearlong bear channel.
But this rally is strong enough so that the bears will probably need a micro double top. Traders will buy the 1st 1 – 5 day selloff.
Overnight EUR/USD Forex trading
The EUR/USD 5 minute Forex chart rallied 50 pips overnight and then sold off 70 pips. It spend most of the past 6 hours in a trading range around the open of the day. Traders, therefore, believe that the open is a fair price. Consequently, they think that the 20 pip bear breakout over the past hour might fail.
If today gets drawn back up into that trading range, today would then be a doji bar on the daily chart. That would be more neutral than a big bear reversal bar closing on its low.
Day traders know that today’s close is important. If today closes near its low, today will be a strong bear reversal bar on the daily chart. It would increase the chance of a deep reversal this week.
The bears do not need it to sell off from here. If today closes where it is now, today will be a strong bear bar. Having the day close much lower will not make the bar significantly more bearish. Consequently, there is not much incentive for the bears to sell at the low. They will be satisfied to sell 20 – 30 pip rallies and try to get the day to close near its low.
The bulls know that they probably cannot get today to close back near its high. Their goal is simply to weaken the overnight bear trend. All they need to do is have the day to close near the open. They therefore will buy selloffs and take profits around the open.
Consequently, despite a big bull trend and then a big bear trend overnight, the remainder of the day will probably be a trading range. Traders will be fighting over the location of the close.
Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.