The EUR/USD the daily chart has been in a trading range for 4 months. There have been many strong legs up and down, but each has led to a reversal instead of a trend.
It is now turning down from a double top lower high and expanding triangle with the September 10 high. The bears want a test of the bottom of the range and then a breakout below the range. The bulls believe that last week’s rally was strong enough to have at least a small 2nd leg sideways to up. But they need this selloff to stop today or tomorrow and reverse back up.
This is the decision that traders repeatedly make in a trading range. Is a reversal simply a pullback from a strong leg that will lead to at least a small 2nd leg? Or, will the pullback grow into a reversal that will test the opposite side of the range?
If the bears get one more bear day tomorrow, the odds will shift in favor of a reversal down to the November low. But if today or tomorrow reverses back up, traders will continue to expect a test of Monday’s high.
Overnight EUR/USD Forex trading
The 5-minute chart of the EUR/USD Forex market sold off strongly overnight. But the selloff has been in a parabolic wedge and it is climactic. That typically will attract profit takers, which usually will end the bear trend and begin a trading range or a reversal.
So far, day traders have only been selling for swing trades. But the selling should soon attract profit-taking.
If there is one more new low and then another reversal, the sell climax will have 3 legs. Traders will then look to buy a reversal up. If there is a reversal up from a strong bear trend, it usually will lead to a trading range for 20 or more bars. At that point, the bulls will have a better chance of a reversal up into a trend.
At the moment, traders expect a minor new low and then profit-taking. That should lead to a trading range, possibly for the remainder of the day. If so, day traders will switch to scalping longs and shorts.
Can the collapse continue all day? When the selloff looks like this, it usually attracts profit-taking and converts into a trading range.