The EUR/USD forex market on the daily chart has rallied for a month, but it is still in its 3-month trading range. There will eventually be a successful breakout and a measured move up or down. But until there is a breakout, each strong rally and selloff is more likely to reverse than lead to a trend.
The bulls want this rally to continue up to above the Sept. 10 lower high and then above the September high. If they get consecutive closes above the September high, traders will conclude that the summer rally is resuming.
The bears expect a reversal down from around where the EUR/USD is now and the September high. They see the rally since the September low as just 2 legs up in a trading range. This is just the mirror image of the 2 legs down to the September 25 low.
Overnight EUR/USD Forex Trading
The 5-minute chart of the EUR/USD Forex market continued its 3-day rally overnight. But, unlike the past 3 days, there was a 30-pip selloff overnight.
I have been saying that the rally would probably reach the Sept. 21 sell climax high because that is what normally happens in a trading range. Now what? The momentum up is strong enough for the rally to continue at least a little higher, like to the Sept. 10 lower high.
However, the overnight 30-pip selloff is a sign that the bulls are starting to take profits on rallies and that the bear day traders are again willing to sell reversals down. The 5-minute chart has been in a trading range for 6 hours. Day traders have been buying and selling for 10–20 pip scalps.
Traders know that the momentum up has been strong enough so that the rally will probably go at least a little higher over the next few days and reach the Sept. 10 lower high. But the chart might pause for a couple days first.
Can the EUR/USD reverse down abruptly today? That is unlikely. After 2 days where traders bought 10–20-pip selloffs, they will probably buy the 1st one-day pullback.