The daily chart of the EUR/USD Forex market had its strongest rally in 2 years over the past few weeks. It was a parabolic wedge buy climax. The final 3 bull bars were an exhaustive buy climax. Traders expect at least 2 legs sideways to down to support.
The past 3 days will be the 1st leg down. The selling has reached all of the targets for the pullback. It tested the 3-day buy climax low, the EMA, the January 31 breakout point, and the 50% retracement level.
A big selloff after a big rally is a reversal. It creates confusion, which is a hallmark of a trading range. Consequently, traders should expect the EUR/USD to be sideways to down for at least another week. Also, the bars will probably begin to get smaller.
The Importance Of The Weekly Close
Today is Friday so weekly support and resistance are important. The bulls want the week to close above the 18 month bear trend line. That is just a little above the current price.
However, the bears want this week’s breakout to fail. They would like this week to close on its low. It would then be a stronger sell signal bar on the weekly chart. They hope that the 3-week rally was just a bull trap in the 2-year bear trend. But, the rally was so exceptional. There will probably be at least a small 2nd leg up after the current pullback ends in a couple weeks.
Overnight EUR/USD Trading
The 5-minute chart of the EUR/USD Forex market has been in the middle of yesterday’s range overnight. So far, the EUR/USD has been sideways in a small range. Yesterday’s was big. Today is an inside day. With yesterday having such a big range, today will probably remain an inside day.
The low of the week is 80 pips below the current price. Overnight, the EUR/USD range would have to double for the week to close on its low. That is unlikely, given how small the legs up and down have been overnight.
The bulls want the week to close above the 18-month bear trend line. That is around 40 pips above the overnight high, which is only about half of the overnight range. Consequently, the bulls have a better chance of achieving their objective than the bears.
Day traders have been looking for reversals overnight and they have been scalping for 30 – 40 pips. That will probably continue all day.