The daily chart of the EUR/USD Forex market had a bear inside bar yesterday after an outside bar. This is an ioi sell signal, and it triggered overnight when today traded below yesterday’s low.
Most attempts to break above or below a trading range fail. The bears might get a 2 – 3 week pullback to the middle of the range.
It is important to remember that the weekly and monthly charts are still in bear channels. However, this 3 month rally was the 1st rally in 16 months to break above the bear channel. That reduces the odds that this selloff will go to a new low. But it if does, traders will buy a reversal up, just like they did with every new low for 16 months.
Overnight EUR/USD Trading
The 5-minute chart of the EUR/USD Forex market sold off 50 pips overnight in a parabolic collapse. Because that is a sell climax, traders should expect the selling to stop soon.
It might have ended in the past hour. While the bulls want the 25 pip bounce to reverse the entire overnight selloff, a tight bear channel normally leads to a trading range. After 20 or more bars in the range, the bulls will have a better chance of getting a reversal up into a bull trend. Consequently, the overnight bear trend is probably converting into a trading range. The range will probably last at least a couple hours.
The bears want today to close near its low. This is Friday. If today closes near the low, the weekly chart will have a strong sell signal bar.
The bears see the 3 month rally as a Low 2 bear flag and hope that the bear trend resumes. Day traders will therefore be fighting today over the close of the week. The bears will sell rallies and the bulls will buy selloffs.
The bears do not need the low to be any lower than it currently is. This week would still be a good sell signal bar if today simply closed near the overnight low. That lack of incentive and the overnight sell climax reduce the chance of a continued bear trend today.
The reversal up so far has not been strong. Day traders are expecting a trading range for at least 2 hours and probably all day.