The forex market on the daily chart broke far above the September high, but it is stalling near some measured move targets. There were 10 days without a pullback. That is extreme and therefore climactic, and it usually attracts profit-taking.
When a rally has been strong, like this one, the 1st reversal down is usually a pullback, which means a bull flag. Traders expect at least a small 2nd leg up.
Yesterday is a buy signal bar, but it has a bear body. The bulls want today to be a bull bar closing on its high. That would be a higher probability High 1 bull flag buy signal bar. That means there would be a better chance of a resumption of the bull trend for at least a few days.
If today triggers the buy signal by going above yesterday’s high, many bulls will not take the buy signal. That is because yesterday had a bear body. Traders are concerned that they might be more sellers than buyers above a bear bar, which means that the pullback might have a 2nd leg down.
The bears see the rally as an extreme buy climax. They hope the profit taking is extreme as well. If it is relentless and the EUR/USD falls below the Sept. 1 high, and then below the Nov. 9 high, traders will begin to conclude that the breakout has failed and that the bull trend is reversing into a bear trend. There is currently only a 40% chance of this. It is more likely that there will be at least a small 2nd leg up before there is a trend reversal, or a pullback lasting more than a few days.
Overnight EUR/USD Forex trading
The 5-minute chart of the EUR/USD forex market has been sideways overnight. The low is above yesterday’s low and the high is below yesterday’s high. Today so far is an inside bar. If it remains an inside bar, it will be a Breakout Mode bar, which means it is both a buy and sell signal bar. The bulls would like it to close on the high, which would make it a better buy signal bar on the daily chart. There would be a better chance that tomorrow will resume last week’s bull trend.
The bears want today to close on the low. It would then be a sell signal bar. There would also be 3 consecutive bear bars on the daily chart. That would increase the chance of at least slightly lower prices.
Daytraders have been scalping today
Since today so far is a trading range and an inside day, it is neutral. Traders are selling reversals down and buying reversals up, and they are scalping. While it is possible that today could be a big bear day, that is unlikely. Traders were expecting a 1 to 3 day pullback on the daily chart, and then an attempt to resume the bull trend. Today is the 3rd day, and traders are becoming more interested in buying on the daily chart. They will try hard to make today be a buy signal bar. That reduces the chance of a big bear day.
Since yesterday is a bear bar on the daily chart and that is not a strong buy signal bar, many bulls will not be eager to buy relentlessly today. But they are hoping that today closes near its high so that today will be a strong buy signal bar for tomorrow.
What is most likely for the rest of today? It will probably remain sideways and inside of yesterday’s range. Also, it should have at least a small bull body. But the 2 bear bars on the daily chart weakened the bull case. The EUR/USD might have to go sideways for another couple days before traders decide between a resumption of the bull trend and a deeper pullback on the daily chart.