The EUR/USD daily Forex chart has rallied for 3 days from support. The low was at the 20 day EMA and just above the January 18 major higher low. A 2nd leg down from the wedge top is likely.
The EUR/USD daily Forex chart had a wedge rally to 1.2500 in January. It is also forming a wedge bear flag on the monthly chart. After selling off for 6 days, it has rallied for 3 days. The bulls hope this is a double bottom higher low with the January 18 major higher low. They then want a breakout above the January high. That is the neckline for the double bottom, and they hope for a measured move up from there. That is a low probability bet at the moment.
The selloff was weak, and the rally so far is weak. Both lacked consecutive big trend bars. The daily chart has been in a trading range since January 16. Both last week’s selloff and this week’s rally look like legs in a trading range.
After a wedge top, especially after a tight bear channel down from resistance, the odds favor a 2nd leg sideways to down. That is why I have been saying for the past few days that a 150 – 200 pip rally was likely. It should retrace at least 50% of the selloff and reach to around 1.2400. That is only another 50 pips higher. The rally will probably last a few more days and then fail. The 2nd leg down will probably fall below the January 18 low, which is around 1.2200.
The EUR/USD 5-minute Forex chart has rallied 150 pips from last week’s low. Yet, it has only been up about 50 pips overnight, and it has retraced half of the rally. The rally is a bull leg in a trading range on the daily chart. It is now in the sell zone.
However, it should get closer to 1.2400 and a 50% retracement of the 2 week selloff before failing. Consequently, the bulls can still swing trade for another 50 – 70 pips. Since the legs on the 5 minute chart are small, day traders are mostly scalping. The bears will begin to swing trade later this week once the rally is around 1.2400.
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