Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

EUR/USD Trading Range Day After Sell Climax

Published 06/28/2016, 09:26 AM
Updated 07/09/2023, 06:31 AM

EUR/USD 15 Min Climax After Bull Channel

The overnight rally on the 15 minute chart lacked consecutive big bull trend bars until its climactic top. It was also in a broad bull channel. Therefore, this rally is probably a bull leg in a developing trading range.

Friday was a huge bear trend day on the EUR/USD daily chart, yet it closed far above its low. Most noteworthy is that it is still above the March 10 bottom of the huge bull reversal. That low is an important support level. As a result of the EUR/USD forex chart being in a yearlong trading range and close to support, it probably will test that low.

Yesterday’s high did not go above the May 30 or June 16 lows. As a result, there is a gap. If the gap stays open, it could be a measuring gap. The initial target is around the May 30 low. Because of Friday’s sell climax and the yearlong trading range, there is a 60% chance that the gap will close. Hence, the odds are that Friday will be an exhaustion gap. If the gap closes, a measured move down still may follow. Yet, that buying pressure would reduces the odds of a big bear trend.

Sell climax on EUR/USD daily forex chart

As a result of the possible climactic reversals, traders will look to buy trend resumption down in the EUR/USD forex chart. Bulls will buy a bear breakout of a bear flag. It is too early to know if there will be more buyers and sellers. Since the 2 day follow-through selling has been bad, there is confusion. Hence, the bulls and bears are more balanced than in a strong bear breakout.

If this is an exhaustive sell climax, the daily chart of the EUR/USD might enter a trading range for a month or more. Therefore, as more bull bars appear, traders will be more willing to buy below bars, betting that bear breakouts will fail. They will also sell above bars, betting that rallies will not go far either. This is trading range price action. There is at least a 50% chance that this will unfold over the next month. There is therefore less than a 50% chance that Friday’s big bear breakout will get strong follow-through selling over the next 2 weeks.

A sell climax does not mean a bull trend. It simply means that the market fell too far and too fast. It usually leads to a trading range. The probabilities then become about the same for the bulls and bears. Hence, the chart enters breakout mode.

European session

Yesterday was a doji inside day. Hence, the bears do not yet have their follow-through selling. The EUR/USD Forex market is up 60 pips and it tested above the May low. If today closes above its open, it will be the 2nd consecutive bull day. Hence, the follow-through selling will be bad. Many financial markets had sell climaxes late in bear trends. Consequently, the odds that these moves are exhaustive are 50% or more, like on the EUR/JPY daily chart.

The overnight rally on the 60 minute chart lacked consecutive big bull bars closing on their highs. Hence, it was probably a bull leg in a developing trading range. The bars and legs on the 5 minute chart have been big enough for 20 pips scalps. However, as they shrink, scalpers will switch to 10 pip scalps.

There was a buy climax on the 5 minute chart 3 hours ago. There was then a 50 pip selloff. This is a Big Up, Big Down candlestick pattern. Hence, a trading range is likely.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.