The EUR/USD daily chart has sold off for 5 days after a sharp rally to the EMA. While it is still above the August low, the selloff is more likely a resumption of the yearlong bear channel than a pullback from the rally 3 weeks ago.
As strong as the selloff has been, it is important to note that there have been many other strong selloffs over the past year. Every new low reversed up within days and led to a 2 – 3 week bull leg in the bear channel.
Will the price action change? For example, will the bears get a strong breakout that lasts several weeks, creating a stronger bear channel? Markets have inertia. That means they resist change. It is more likely that the behavior of the past year will continue.
Consequently, traders will continue to look for a reversal up within a week or two until there is a new low with consecutive big bear bars closing near their lows. If the bears get that, traders will look for several weeks down below the August low before buying again.
Overnight EUR/USD Forex Trading
The EUR/USD 5-minute chart sold off early in the European session to below yesterday’s low, but it has been in a 15-pip trading range for the past 6 hours. Traders are deciding if the selloff will continue to below the August low.That target is only 6 pips below the overnight low. Can today break strongly below that low? This is unlikely because the bears will not gain much by doing that. They have already convinced traders that the rally from 3 weeks ago was just a bull leg in the yearlong bear channel. They would need a 50-pip selloff from here today to make traders believe that the bear channel is evolving into a bear breakout. That would represent a change in the yearlong behavior and it is therefore unlikely.What about the bulls? Can they get a strong reversal up today? Probably not. The bear channel over the past week has been tight. A tight bear channel typically has to transition into a trading range before there will be a strong rally.
Weekly And Monthly Targets Are Important Today
If today does not go far up or down, what is left? A trading range day. Today will probably focus on the August low and last week’s low. If the bears can close the day, week, and month below both, there will be an increased chance of a bear breakout below the bear channel over the next few weeks. If the bulls can get the week to close above both, it will increase the chance that there will be a reversal up within 2 weeks and the yearlong bear channel is continuing.