The EUR/USD daily chart rallied for 2 weeks in a weak bull channel after a strong selloff in late March. A bull channel is a bear flag. The bears broke below the bull channel overnight.
But, they have not yet broken below the 5-month trading range. Traders want to see consecutive closes below the bottom of the range before they will conclude that the trading range has converted into a trend.
Until then, they will buy every selloff, sell every rally, and take quick profits. This is because they are correctly betting that reversals are more common than breakouts when there is a trading range.
Overnight EUR/USD trading
The EUR/USD 5-minute chart sold off strongly on the start of the European session. Since then the 5-minute chart hast been in a 20 pip trading range.
Everyone sees the break below the 2-week bull trend line. Everyone knew that the bull channel was likely to have a bear breakout. Therefore, this selloff is a test of the April low. What traders want to see is either a strong break below or a strong reversal up.
Because reversals are more common than breakouts when there is a trading range, traders expect a reversal up from somewhere around the April low. While it could come today, that is unlikely. The overnight momentum was strong enough to make at least a small 2nd leg down likely. Consequently, traders will look to sell rallies.
But, since the chart has been in a tight range for 5 hours, day traders will also look to buy reversals up for scalps. Since a 2nd led down over the next few days is likely, it will probably be easier to make money selling rallies.
Finally, there has been very little movement in the US session over the past several weeks. The big moves have been coming in the European session. As a result, US day traders expect to scalp, even after a big selloff, like this one. However, Attorney General Barr’s announcement at 6:30 am PST or the release of the Mueller report around 8 am PST could lead to a strong move up or down today.