The EUR/USD daily Forex chart sold off over the past 2 days at the 20 day EMA after breaking slightly above the May 9 high. Since the 8 day rally was strong and it followed a sell climax, a 2nd leg sideways to up is likely after a test down. And, so is a trading range for at least a month.
The EUR/USD daily Forex chart traded to below yesterday’s low today. The 8 day rally was strong, but it is stalling at resistance. It broke slightly above the 20 day EMA and the May 22 lower high. However, a Big Up move after a Big Down move creates Big Confusion.
When traders become less certain, they take quick profits. In addition, they prefer only to sell high and buy low. This creates a trading range. Consequently, this rally is a bull leg in a trading range. Therefore, there will soon be a bear leg, and then at least one more bull leg.
This process will take at least 1 – 2 months. The bulls are now probing to find the top of the 1st leg up. Yesterday’s high is a reasonable candidate, but so is the May 14 major lower high just below the 1.20 Big Round Number.
While today is trading below yesterday’s low, yesterday had a bull body. That is a weak sell signal bar. In addition, the 8 day rally was in a tight bull channel. The bears will probably need at least a micro double top to end the 1st leg up.
Therefore there are probably more buyers than sellers below yesterday’s low. However, many buyers will prefer to buy around a 50% pullback. In any case, the odds are that today’s selloff will probably not last more than a few days. For example, the market might go sideways into Wednesday’s FOMC meeting.
Just as there are probably buyers below yesterday’s low, there are probably sellers above its high. At a minimum, today is the start of a few sideways days, but it might be the end of the 1st leg up.
Overnight EUR/USD Forex trading
The EUR/USD 5 minute Forex chart sold off 70 pips overnight and 110 pips from yesterday’s high. Since this is following a strong 7 day rally and it is already fairly big, there will probably not be much more selling today. The odds are that the 5 minute chart will continue the trading range that began 3 hours ago.
In addition, after a sell climax on the daily chart and a buy climax on the 60 minute chart, the 5 minute chart will probably be in a trading range for a few days. Therefore, day traders will mostly scalp for 10 – 20 pips.