The daily EURUSD Forex chart has had a series of buy climaxes in a tight bull channel for a month. This is usually a minor top. Today so far is a strong sell signal bar. The target is the bottom of the wedge, which is about 400 pips below this top.
The EURUSD daily Forex chart has been in a strong bull trend for 7 months. Yet, over the past month, every strong bull trend bar led to a pause instead of a series of bull bars. This is trading range price action. Hence, this rally will probably be a bull leg in a trading range when traders look back at it in 6 months.
A wedge top (here, a parabolic wedge) usually corrects down to the bottom of the wedge. Since that is about 400 pips below the high, bears will begin to place shorts and hold for a swing down to around the July 5 low. Incidentally, there is also an expanding triangle top on the 240 minute chart.
Buy climaxes can extend very far and therefore this one could go much further. Yet, it is at resistance and therefore in a sell zone. It broke a little above its 30 month trading range, but did not break back up into the bottom of the 7 year trading range above. This is a good area for swing trading bulls to take profits.
Transitioning into trading range
After an initial reversal down, the bulls will wait at least a couple of weeks before buying again. They want to see how strong a reversal the bears can create. If it is not strong, the bulls will buy again after a couple small legs down over the next 2 weeks.
On the other hand, if the reversal has strong bear bars or a series of strong bear bars, the bulls might wait to buy until the selloff reaches the bottom of the wedge bull channel. Hence, they would buy around 1.1300.
If the bears correct down to that level, the EURUSD daily chart will probably bounce at least 200 pips. At that point, the bull trend will have converted into a trading range. Furthermore, that range could last many months.
Overnight EURUSD Forex trading
The EURUSD 5 minute chart sold off 80 pips in a tight bear channel overnight. If today closes near its low, today will be a strong sell signal bar on the daily chart. Since the overnight channel has been tight, the 1st reversal up today will probably be minor. This means that the best the bulls will probably get today is a 40 pip bull leg in a trading range.
Since the selloff has had bad follow-through after strong bear bars, it will probably soon transition into a trading range. Day traders will scalp. Yet, the context on the daily chart is good for the bears. Consequently, the long-term bulls will begin to sell rallies to take profits. In addition, the bears will sell rallies, looking for a correction down that could last a couple of months.