EURUSD buy climax so trading range
The EUR/USD 240-minute Forex chart is rallying from a higher low major trend reversal. The current bar has a big tail, which means that the 5-minute chart is stalling at the June 9 lower high. A reversal down here would create a double-top bear flag.
The EUR/USD has been in a tight trading range for 10 days. It is in breakout mode and it is waiting for the Brexit vote. Most noteworthy is that there will be news coming out all day today, as there was yesterday. There will probably be several 30 – 50 pip moves followed by abrupt reversals until the final result comes out during the European session on Friday. Consequently, traders have to be quick to take profits when there is a reversal. If the moves are upsetting, simply wait for them to get smaller and slower.
Most noteworthy is traders must be careful not to buy at the top or sell at the bottom of a strong breakout. They should only do that if the breakout is clearly far beyond all of the bars to the left. Most of all, it should have strong follow-through.
UK Is Small
The big picture will not change. The UK contributes about 2% of the world’s economy. Even if its contribution drops 5%, that will not change the 2% contribution. Especially relevant is the appearance of the weekly and monthly charts. They are in breakout mode after an oversold bear trend. Most firms have already factored in the Brexit vote result. Yet, it is impossible to know in advance if most will buy or sell. Consequently, traders simply have to wait for the breakout.
There is a 50% chance that the breakout will reverse either immediately or with a couple day. There is an 80% chance that the breakout will not lead to a successful breakout of the yearlong trading range.
European Session
As it becomes more clear that the UK will vote to stay in the EU, the Forex markets are getting back to technical trading. The EUR/USD market rallied 90 pips overnight. It is testing the June 9 lower high. The bears want a double-top bear flag. The bulls want a breakout and a test of the May 3 high. While the UK will probably vote to stay in the EU, it is still possible for the EUR/USD to selloff on the news.
Since the EUR/USD is now at resistance and has stalled for 3 hours, it might stay sideways until the vote results come out tonight. If there is a strong breakout above the overnight high or a strong reversal down, traders will swing trade. They are now scalping.