The EUR/USD Forex market on the daily chart reversed up strongly from a failed breakout below the bottom of the 4-month trading range. The bulls see this as a double bottom bull flag. Remember, I keep saying that reversals in a trading range are more likely than a successful breakout. This is another example.
The 2-day rally has been very strong. It should attract profit-taking today or tomorrow. That could lead to a 50 to 100-pip pullback. However, because the rally has been exceptional, there are many traders who are eager to buy a selloff. This should result in at least a small 2nd leg sideways to up.
The bulls want a strong breakout above the October 21 lower high and especially above the September 1 top of the 4-month range. If they get 2 closes above the range, traders will look for a test of the next resistance. That is the February 2018 high, above 1.25.
Can the EUR/USD abruptly reverse down to below yesterday’s low. Probably not. There should be at least a small 2nd leg up.
Overnight EUR/USD Forex trading
The 5-minute chart of the EUR/USD Forex market has rallied in a strong bull trend overnight. Because the rally has been parabolic and the day’s range is huge, many bulls will start to take profits. This should result in a 30 to 50-pip pullback within the next couple hours.
Once there is a 30 to 50-pip pullback, traders will expect the bull trend to transition into a trading range. At that point, some day traders will also sell rallies. But even after it evolves into a trading range, day traders will still prefer to buy pullbacks over selling rallies for the 1st couple hours.
There is an FOMC announcement at 11 am PST today. That can lead to a big move up or down in any financial market. Day traders should exit positions ahead of the report and wait at least 10 minutes before resuming trading.