The EUR/USD daily Forex chart bounce overnight after Monday’s 1st leg down from the wedge top. The odds are that the chart is transitioning into a trading range over the next month or two.
The EUR/USD daily Forex chart reversed down on Monday from a wedge top. The wedge has a good shape. In addition, it is at resistance on the monthly chart. Furthermore, the 7 month rally is in a tight bull channel and is therefore climactic. The 2nd and 3rd legs up in the wedge bull channel were strong. That increases the chances of 1 more minor new high before the daily chart transitions into a trading range. While the bull trend can continue much higher, these facts make a pullback likely over the next month or two.
Since the pullbacks from the 2nd and 3rd tops of the wedge lasted only a couple of days, the wedge is small. Any reversal down will therefore probably be minor. This means that the best the bears can probably get is a trading range over the next few months.
However, if there is a strong break below the August 31 bottom of the wedge, the pullback could fall for a measured move down. That would therefore be a 50% pullback. In addition, it would be a test of the top of the 2 year trading range at around 1.1600. Yet, the odds still would favor a trading range, albeit big, rather than a bear trend.
The 5 minute chart traded in a 30 pip range overnight. Therefore day traders are scalping. Since there is a wedge top on the daily chart, the overnight rally will probably form a lower high. This is because even a small reversal down from a wedge top usually has at least a small 2nd leg sideways to down. As a result, swing traders on the 5 minute chart will sell this rally, looking for a test of yesterday’s low. In addition, that would be a test of the 20 day exponential moving average.
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