The EUR/USD daily chart has rallied for 7 days and is now testing the 3 month bear trend line. More importantly, it is also testing the February 28 lower high. A bear trend needs lower highs. If the bulls can break above 1.1420, there will then be a higher high. That would make it likely that the 3 month bear trend has ended. Instead, the chart would be back to a trading range.
The 3-month bear channel reversed up from a wedge bottom. That is a sell climax, which typically leads to at least a 2nd leg up. Therefore, the bulls will buy the 1st 1 – 2 week selloff, expecting a higher low.
If they get a selloff with a good buy signal bar, there will be a higher low major trend reversal. A major pattern has a 40% chance of leading to a swing up. The target would be the top of the 4 month range at 1.1570.
With every strong selloff and rally over the past 4 months, I have said trading ranges resist breaking out. Furthermore, I said that traders should expect reversals and not the start of a trend. This continues to be the case. Traders are waiting for clear information from Brexit before they look for a trend up or down.
Overnight EUR/USD Forex Trading
The EUR/USD 5-minute chart rallied 40 pips overnight in a tight bull channel. It is being drawn up to the bear trend line, which is only 5 pips above today’s high. However, the tight bull channel makes a bear trend day unlikely. Consequently, the best the bears will probably get today is a 30 pip tall trading range.
A more important target is the February 28 lower high. Since it is 50 pips above today’s high, the bulls will probably not get there today. In addition, today is a 2nd leg up from the small pullback on Thursday. Therefore, the bears will try to get a reversal down this week from below the February lower high.
That would be a micro double top. But, even if they can begin a 1 – 2 week selloff, the bulls will buy it, expecting a 2nd leg sideways to up after the March wedge bottom.
Entering The Sell Zone
Because the bulls will take profits around the bear trend line or just above the February 28 lower high, this rally will probably end this week. However, it has been strong. In addition, after the March 7 wedge bottom, a higher low from below 1.13 is likely within a couple weeks.
Can the rally continue up to above the top of the 4 month range without more than a 2 – 3 day pullback? Yes, but that probably will not happen because the daily chart is still in a trading range. Every strong leg up and down has reversed within 2 – 3 weeks.