The EUR/USD on the daily chart has been sideways for a month. It broke above a triangle yesterday, but not above the June 23 lower high.
Traders see the overnight reversal as a pullback from yesterday’s breakout. However, they know that as long as the EUR/USD remains in the trading range, it can never be more than slightly bullish or bearish.
The bears see yesterday as a test of the June 23 high. A selloff from here would be a double top lower high major trend reversal.
Traders expect reversals every couple days. They, therefore, are buying low, selling high, and taking quick profits. This results in a continuation of the trading range.
This week broke above an ii pattern on the weekly chart (consecutive inside bars). But the EUR/USD is currently back below last week’s high. Therefore the breakout is not yet successful.
A month is a long time for a tight trading range. Traders expect a successful breakout up or down within a couple of weeks. But until there are a couple consecutive big trend bars up or down, they will continue to bet on reversals.
Overnight EUR/USD Forex trading
The 5 minute chart of the EUR/USD Forex market sold off overnight from below yesterday’s high. However, over the past couple hours, it reversed up from above yesterday’s low. Therefore, today is an inside bar on the daily chart.
The rally has retraced about half of the selloff. Many bulls will start to take profits and the bears will begin to look to sell again. This will probably result in 1 – 2 hour leg sideways to down. That means day traders expect a trading range to begin soon on the 5 minute chart. Day traders will scalp for 10 to 20 pips up and down.
The bulls want the reversal up to get above the open. That is only 20 pips above. Today would then have a bull body. Traders would see it as a more reliable buy signal bar on the daily chart for a pullback from yesterday’s breakout.
The bears, however, want today to close near its low. Today would then be a sell signal bar for a double top on the daily chart.
Which is more likely? Neither. In a trading range, confusion is most likely. Therefore, today will probably have a bear body, but it will probably not close on its low. It will then be both a bad buy and sell signal bar for tomorrow. Traders would expect more sideways trading tomorrow.