The EUR/USD daily chart sold off for 3 weeks in a tight bear channel. Since the selloff had 3 legs down, it is a parabolic wedge and a sell climax. It is testing the June 18 low. The bulls want a reversal up from here, which would be a double bottom bull flag. They are hoping that the May 23 low is the start of a bull trend that will last for many months.
But the past 3 days had bear bodies. Additionally, the channel has been tight and there has only been one small bull bar in 3 weeks. Consequently, the first reversal up will probably be minor.
Since traders are starting to believe that the chart is in a bull trend, many are willing to buy and put a stop below the May 23 low. This is just in case the chart resumes up without a micro double bottom.
The bears want another new low in their yearlong bear channel. However, the weekly chart is now getting closes above the 20 week EMA and the daily chart is forming higher highs and lows. There is currently less than a 50% chance that the chart is still in a bear trend. It is clearly in a trading range and it is now also in an early bull trend.
Overnight EUR/USD
The EUR/USD 5-minute Forex chart rallied 30 pips a few minutes ago. It broke above yesterday’s high. This triggered a minor buy signal on the daily chart.
While the bulls hope that this is resumption of the May/June bull trend, the bear channel on the daily chart is tight. The 1st reversal up is typically minor. Consequently, a 1 – 3 day bounce is more likely than a bull trend.
Because a bounce for a few days is more likely than a bull trend, day traders will be quick to take profits on longs if today’s rally stalls.
In addition, the bear day traders will look for this morning’s breakout to fail. They therefore will sell if there is a micro double top or a trading range with a good sell signal bar.