The EUR/USD has pulled back for two days after a strong rally, marking a High 1 bull flag.
However, there were consecutive big bull bars last week. Because they have emerged late in a bull trend, they probably will attract profit-takers. There is often one more brief leg up before the profit taking begins.
It is important to note that there does not have to be a pullback. The rally could continue to far above the March high, without more than a two-day pause. But that would be unusual after last week’s consecutive rallies.
Once the bulls take profits, the 1st downside target is the bottom of the most recent buy-climax. That means the low of those two bull bars from last week. That would be about a 200 pip pullback to below 1.12. It would also be a test of the March 16 breakout point.
If the pullback fell further over the next couple of weeks, it could test the May 1 high. That is the top of the 2 month trading range and the neckline of the head and shoulders bottom.
Overnight EUR/USD trading
The 5-minute chart of the EUR/USD shows a sell-off last night to below yesterday’s low and rallied back to the open. Today so far is a doji bar on the daily chart, like yesterday.
Since yesterday is a buy signal bar, the bulls want today to go above yesterday’s high. That would trigger the High 1 bull flag buy signal on the daily chart.
If it does not, today would be a High 1 bull flag buy signal bar for tomorrow. Traders expect an attempt to resume the bull trend on the daily chart. Therefore, either today should go above yesterday’s high, or tomorrow should go above today’s high to trigger the buy signal.
But doji bars are weak buy-signal bars, especially after a buy climax. Consequently, there might be more sellers than buyers above this point.
Can today reverse back down and close on its low? Probably not. Traders are exhausted and the trading over the past two days has been quiet. That reduces the chance of a big move today.
If there is a big move, up is more likely because yesterday is a buy-signal bar in a bull trend. So far, day traders have been scalping up and down. That will probably continue all day.