EUR/USD: FOMC Meeting Will Be Catalyst

The Forex market on the daily chart broke to a new 2-year high overnight. The bulls want the rally to continue up to the February 2018 major lower high above 1.25, without more than a 2-week pullback.


However, that is unlikely. This is a 3rd leg up on both the daily and weekly charts. A reversal would be from a wedge top, and it would probably lead to a pullback that lasts at least a few weeks.

Also, most of the bars for 3 weeks have overlapped one another and have prominent tails on top. This is not how a chart typically looks if it is going a lot higher from here. It is trading range price action, and increases the chance of a bear leg developing soon.

But the EUR/USD has been trending up since March, and therefore traders will continue to look for at least slightly higher prices, until there is a strong sell signal bar, or a big reversal down. There is at least a 50% chance that this rally will begin to pull back to below 1.20 by early January.

Overnight EUR/USD Forex trading

The 5-minute chart of the EUR/USD Forex market broke strongly above the Dec. 4 high overnight, but it drifted back down to that high over the past several hours. The bulls want today to close far above that breakout point, and on the high of the day. That would increase the chance of a measured move up, based on the height of the 10-day trading range.

The bears always want the opposite. They want the reversal down to continue to a new low. If today is a big bear day on the daily chart, it would be a credible sell signal bar for a wedge top reversal.

What is most likely after a relatively big breakout and a reversal down? Confusion, and that usually results in a trading range. The most likely outcome after the 30-pip selloff is that the EUR/USD goes sideways. Then, at the end of the day, the EURUSD will probably close a little above or below the December 4 high.

There is an FOMC at 11 am PST today. That can affect all financial markets. It is better for day traders to exit positions ahead of the report and wait at least 10 minutes before resuming trading.

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