The EUR/USD daily Forex chart rallied for 10 days in a bull micro channel. It sold off sharply for 2 days last week. Whenever a market reverses down sharply after reversing up sharply, there is confusion (Big Up, Big Down creates Big Confusion). Confusion is a hallmark of a trading range.
I wrote on Friday the the daily chart would probably be sideways for several days this week. So far, today is a bull bar that is inside Friday’s range. It is within the 3 day tight trading range from 6 days ago. That increases the chance of more sideways trading today and tomorrow. The chart might enter a tight trading range while it waits for more Brexit news.
The bulls want the 2-day selloff to be a higher low major trend reversal. And it might be. They need today to close near its high to be a credible buy signal bar for tomorrow. Furthermore, they expect a 2nd leg sideways to up after a wedge bottom and a bull micro channel.
However, 2 days down is typically not enough to lead to a major reversal. Furthermore, even a perfect major reversal pattern only has a 40% chance of a swing up. Finally, every strong leg up and down for 4 months reversed. Therefore, a swing up would still probably not break far above the 4 month range. Trading ranges have a strong propensity to continue.
Overnight EUR/USD Trading
The EUR/USD 5-minute Forex chart has rallied 35 pips overnight. However, there was a 20 pip pullback in the rally. While the daily chart has a bull trend bar, the 5-minute chart is in a bull channel. It has also been in a trading range for 5 hours.
The bulls need a strong breakout above the high from 3 hours ago. However, today’s bars are not big and many have prominent tails. This is trade action price action, and it reduces the chance of a big trend today. More likely, today might rally a little further, like up to Thursday’s low.
The bulls will continue to buy pullbacks because they want today to close on its high. That would make it a stronger buy signal bar for tomorrow on the daily chart.
Since the bears always want the opposite and the chart has been sideways for 5 hours, the bears will continue to sell rallies. Neither is looking for a trend at the moment. Day traders have been scalping for about 10 pips.