The EUR/USD 5-minute chart had a 200-point rally and then a 200 point selloff. It is forming a wedge bottom at the low of the rally. The odds favor 2 legs sideways to up and then a trading range.
The EUR/USD rallied 2% on the news of a possible Trump victory. Yet, it then totally reversed down to below yesterday’s close. Furthermore, the reversal came from below the August major lower high. Therefore, the bear trend on the daily chart that began in May is still in effect. Yet, the chart is still within its 18-month trading range. It is therefore still in breakout mode.
The 5-minute chart sold off in 3 pushes. It is at the support of the low of the overnight session. Hence, it will probably try to reverse up from a wedge bottom today. If so, the bulls will try to get a two legged rally. While the target is the last lower high, that is 100 pips above. It therefore might be too far to reach today.
Confusion Usually Leads To Sideways Trading
The rally of the past 2 weeks was strong. Furthermore, the EUR/USD is still far above the low. In addition, it is still above last night’s low. As bearish as a 200 pip sharp selloff is, it is stalling at the support of yesterday’s low and in the middle of the 2-week rally. Because this is confusing, it increases the chances of several sideways days.
Furthermore, it increases the odds of trading range trading on the 5 minute chart. Yet, because the range is so big, the legs will probably be big enough for swing trades.
Big Bars So Trade Small
Especially relevant is that the overnight range was huge. It therefore had huge bars on the 5-minute chart. While the momentum down has slowed over the past 6 hours, the bars are still big. Forex day traders should trade smaller positions until the bars get back to normal size.