The daily chart of the EUR/USD Forex market has sold off strongly for 6 days after an even stronger rally. Big Up, Big Down creates Big Confusion. This typically results in a trading range. Consequently, there will probably be a bounce within a few days.
At the high, I said that the rally was either the start of a bull trend or a big bull leg in a big trading range. I said that a trading range was more likely.
Because of the parabolic wedge buy climax, traders expected a 2 legged pullback below support. This is that pullback.
The bears hope it is a resumption of the 2 year bear trend. It is more likely a deep minor reversal and a leg in the 8 month trading range.
Traders will find out this week. If this is simply a leg in a trading range, the bears will be disappointed by a lack of follow-through after today’s bear breakout. There should then be a 1 – 2 week bounce and more sideways trading.
Less likely, this is a resumption of the 2 year bear trend. If so, this selling will continue to below the February low without more than a 2 – 3 day bounce.
Overnight EUR/USD Forex trading
The 5 minute chart of the EUR/USD Forex market has been in a free-fall for the past 6 hours. This is climactic. It is a sign of strong bears. Traders have only been selling.
The 20 minute pause around 4 am PST was the end of the 1st leg down in the sell climax. There is now a 2nd leg down. That typically results in exhausted bears.
When bears get exhausted, they take profits and wait for at least a couple legs up to the EMA before looking to sell again. That bounce usually takes 10 or more bars.
Once it occurs, traders expect a trading range or a bear channel. The bears sell rallies and take profits at a new low.
Also, the bulls will finally begin to buy. They look for reversals up from below the most recent low.
The legs and bars are big enough for 20 – 40 pip scalps. But they will shrink as the day goes on.
Day traders should expect the sell climax to end within an hour or so. They then will look for either a trading range or a bear channel for the rest of the day.
However, the bear trend has been very strong. It will be easier to make money selling rallies than buying new lows unless there is a surprisingly strong reversal up. That is unlikely today.