The EUR/USD daily Forex chart rallied for 4 days from a micro wedge bottom. Because the wedge is at the bottom of a 4-month trading range, this could be the start of a bull leg that could last several weeks.
But, the February selloff had an unusually strong series of consecutive big bear bars. When a selloff is that strong, the bulls typically need a small double bottom before they can begin a swing up. Consequently, the odds favor a test down to around 1.1250 within 2 weeks.
The bulls expected 2 small legs up from their micro wedge. Once yesterday went above Monday’s high, it met the minimum goal. While the bulls hope this rally will continue, it instead is probably going to be a bear flag.
Bear flag, But Bottom Of Trading Range
If the bears today can create a bear bar closing near its low, it will be a sell signal bar for the bear flag. However, because trading ranges resist breaking out, even if the bear flag triggers and there is a selloff below 1.1250, the odds are that the bulls will get a reversal up.
A reversal up from around last week’s low would create a double bottom. The bulls would then look for a test of the middle of the range, above 1.14, as their minimum goal.
I said that the bears see this 4 day rally as forming a bear flag. They still need a strong break below the November low before traders will conclude that the trading range has converted into a bear trend.
Because 4 months is a long time for a trading range, there will probably be a breakout within a couple months. However, until there is a breakout, there is no breakout. Despite the strong selloff, the odds are only slightly better for the bears. Another week or two of higher prices will return the probability to 50% for the bulls and bears.
Overnight EUR/USD Forex Trading
The EUR/USD 5-minute chart has been in a 30-pip range overnight. This is because the bulls achieved their goal of 2 legs up to the 20-day EMA. The bulls are beginning to take profits and the bears are starting to sell again.
Since today is a sell signal bar at the EMA on the daily chart, its close is important. The bears want the day to close on its low. That would form a higher probability sell signal bar on the daily chart. They therefore will sell rallies.
However, the bulls want at least a small bull body on the daily chart. They therefore will buy dips below the open.
Neither the bulls nor the bears need a big day today. Today is a decision day and the fight will be over the close of the day. Consequently, the overnight trading range will probably continue all day, with both sides fighting over where the day will close.