The EUR/USD on the daily chart pulled back yesterday in the strongest rally in 3 years. Yesterday is a High 1 bull flag buy signal bar. But it was a bear doji and it followed a strong bear reversal bar. This is a weak buy setup.
Furthermore, the rally is a nested wedge buy climax at major resistance. It is more likely that the EUR/USD is beginning a 2-week profit-taking pullback to around the EMA and the March 9 high breakout point. Traders expect more sellers above yesterday’s high and last week’s high than buyers.
Traders know that the selloff on the daily chart will probably not be a strong reversal down. They, therefore, are not expecting a series of big bear days. In fact, after the strongest rally in three years, the EUR/USD might enter a tight trading range for a week or two. At that point, traders would decide whether to resume the bull trend or continue down to test the breakout points at the September 9 and March 10 highs.
Overnight EUR/USD Forex trading
The 5-minute chart of the EUR/USD Forex market triggered a buy signal overnight on the daily chart by going above yesterday’s high. But instead of buying the breakout above yesterday’s high, traders sold it. This makes sense since the bulls are probably looking to take profits. The EUR/USD barely went above yesterday’s high and then reversed down over the past 3 hours.
Because traders expect the EUR/USD to work sideways to down for a couple of weeks, traders will look to sell rallies. After the 50 pip selloff over the past 3 hours, they will sell 20 – 30 pip rallies today.
However, since they know that a tight trading range is likely for a week or so, they will also look to buy reversals up. In addition, they expect a lot of trading range trading.
Therefore, despite a 50 pip selloff in a tight bear channel over the past 3 hours, they are looking for mostly sideways trading for the rest of the day. Their default will be to scalp for 10 – 20 pips unless there is a strong swing setup or a strong breakout up or down.