The EUR/USD daily Forex chart yesterday reversed down after Tuesday’s buy vacuum test of the top of the October 26 sell climax. It was also a double top lower high in a 3-month bear channel. The bulls see today as part of a pullback from a strong reversal up from a breakout below a 4-month trading range.
The EUR/USD daily Forex chart yesterday reversed down from just above the October 26 sell climax high. In addition, yesterday was a sell signal bar for a double top lower high with the October 12 major lower high. The bears want Tuesday’s rally to be just a buy vacuum test of a lower high in a 3 month broad bear channel. On the 240-minute chart (not shown), the bears want Tuesday to be a 2nd Leg Trap in a bear channel.
Yet, the reversal up took place at the 20-week EMA, and the weekly chart is in a strong bull trend. Therefore, rather than a 2nd leg trap on the 240 minute chart. Tuesday’s rally is more likely the 1st of 2 legs sideways to up on the daily chart. This means that the bulls will buy a 1 – 5 day selloff. They correctly believe that a higher low and at least a small leg sideways to up is likely.
Since the rally put the daily chart back in the October trading range, and a pullback and then at least a small rally is likely, the daily chart will probably be sideways for at least several more days. In addition, the 4-month trading range will probably continue for at least several more weeks.
Overnight EUR/USD Forex Trading
The 5 minute EUR/USD chart sold off 100 pips from yesterday’s high. If the 6-day rally is just a 2nd leg trap, the daily chart will likely begin an endless pullback. That means 3 or more consecutive bear trend bars on the daily chart. Since a bull flag is more likely, the bulls will begin to buy again today or tomorrow. However, the rally stalled at important resistance, and reversed down strongly since yesterday’s high.
Because that created a 3-day Big Up, Big Down pattern, it generates Big Confusion. Since confusion is a hallmark of a trading range, the 5-minute chart will probably begin to form a 100 – 150 pip tall trading range. Therefore, bulls will buy selloffs and look for 30 – 50 pip bounces, and bears will sell rallies and scalp. Day traders will probably be forced to scalp for 10 – 20 pips for several days.