The daily EUR/USD Forex chart is in a strong bull trend. However, it is too strong and too late.
Last week’s strong breakout is more likely an exhaustive buy climax than the start of an even stronger leg up.
The EUR/USD Forex market is in a strong bull trend. Yet, when a bull trend accelerates after 20 or more bars, the breakout is more often a vacuum test of resistance than the start of a strong leg up.
This rally got to within a pip of the 1.1700 Big Round Number.
this morning. Hence, it is within 112 pips of the 1.1712 August 24, 2105 top of the 30 month trading range. In addition, it is making a 5th push up in a parabolic wedge channel. This follows the June 27 bull breakout. This is therefore late in a spike and channel bull trend. Finally, the channel is a parabolic wedge buy climax.
Spike and Channel Bull Trend
Since spike and channel bull trends usually have bear breakouts and then they evolve into trading ranges, that is what is likely here. The process usually takes at least 10 bars. Therefore, the odds favor at least a 2 week pullback with 2 or more small legs. The target is the bottom of the wedge. That is therefore the 1.1312 July 5 low. Since that is 400 pips below, the pullback will probably require at least a month to get there.
Overnight EUR/USD Forex trading
While there is a parabolic wedge buy climax on the daily chart. Thursday’s bull breakout was strong. It was therefore likely to lead to at least one more small leg up. Last night’s rally met this minimum requirement.
The 5 minute chart had a strong bull breakout about an hour ago. It stopped 1 pip below 1.1700 and 13 pips below the top of the 30 month trading range. The rally was strong enough to make at least slightly higher prices likely today.
Yet, most trading range breakouts fail. While this one is very strong, the odds are that it will pull back after breaking above the 30 month high. This is especially true because the breakout on the daily chart is in a parabolic wedge channel.
Markets have inertia
Since markets have inertia, the 30 month trading range is likely to continue at least for a couple more months. Similarly, the momentum up on the 5 minute chart is likely to lead to at least slightly higher prices today. The odds favor a break above the 30 month trading range high of 1.1712 today or tomorrow.
But, the buy climax pattern on the daily chart makes a pullback likely soon. Hence, bear swing traders will look for a bear reversal or micro double top on the daily chart. They will expect a 400 pip pullback over the next month or two. Bear day traders need a strong reversal down, which they do not yet have. In fact, with the rally of the last hour, the best they will probably get today is a trading range, not a bear trend.
Bull swing traders on all time frames keep buying because the momentum up is strong. However, they see the buy climax and know that the daily chart will probably reverse soon. They will therefore be quick to exit their longs on a reversal down. Until then, they will continue to buy. However, the odds are beginning to shift in favor of the bears.