The EUR/USD on the daily chart pulled back for 3 days after a strong 4-day rally. The rally barely broke above the September 10 lower high. It was strong enough for traders to expect at least a small 2nd leg sideways to up.
The bulls want a breakout above the September 1 high, which is the top of the range. Since most breakout attempts fail, the odds are that this rally will fail to get much above that high, if it gets above that high.
This 3-day selloff looks more like a bull flag than a bear trend reversal. It lacks consecutive big bear bars; yesterday closed in its middle; last week’s rally was strong and, today tested yesterday’s low and reversed up. These factors make traders expect a 2nd test of this week’s high within a week.
It is still possible that this is the start of a reversal down from a double top with the September 10 lower high. If the selloff continues for a few more days and has bear bars closing on their lows, then it will probably continue down to the November 4 low. Without that, traders will continue to expect at least a small 2nd leg sideways to up.
Overnight EUR/USD Forex trading
The 5-minute chart of the EUR/USD Forex market reverse up from a test down to just above yesterday’s low. But the rally failed to get above yesterday’s high.
Today so far is a bull inside day. If it closes above its midpoint, traders will see it as a buy signal bar for tomorrow. If not, traders will expect a 4th sideways day tomorrow.
As strong as the overnight rally was, the EUR/USD retraced about half and it fell more than 30 pips from the overnight high. That increases the chance of a trading range. Day traders will look to buy selloffs, sell rallies, and take quick profits.
The bulls would like a strong bull trend day. But they do not need it. All they really need is for today to be a good buy signal bar for tomorrow. The more today closes near its high, the higher the probability will be that last week’s rally is resuming. If today reverses back down to the low of the day, traders will expect more sideways to down trading tomorrow.
With the past 4 days all having prominent tails on the daily chart and the past 3 days being sideways, traders see the EUR/USD as fairly neutral. That reduces the chance of today closing on the high or low of the day. The fight will be over the size and direction of the body.
The reversal up overnight makes today likely to have a bull body. If the bulls are strong enough to get today to close near the high of the day, traders will be more willing to buy tomorrow, looking for a resumption of last week’s rally.