EUR/USD 100 Pip Bounce

EUR/USD Daily Chart

The EUR/USD daily Forex chart is turning down from a wedge top. Since it is near a higher low and the moving average, it is at support.

Yet, a wedge reversal typically has 2 legs down and therefore bears will sell the 1st rally.

The EUR/USD daily Forex chart is turning down from a wedge top. In addition, it is at the resistance of the 1.2000 Big Round Number, and the bottom of a trading range on the monthly chart. Furthermore, it is at a measured move up on the daily chart. The selloff over the past week is a sign that the wedge top is likely to achieve its minimum goal of 2 legs down. Because the 1st leg down is unfolding, the odds are that traders will sell any 2 – 5 day rally.

This is because they expect the 1st reversal back up to fail and lead to a 2nd leg down. A reasonable target for the bears is the bottom of the wedge, which is the August 17 low. If it gets there, the bulls will try to rally from a double bottom with that low. However, the bears will continue to sell rallies, hoping for a strong break below the wedge bottom. They would then look for a measured move down to the next support. That is at the top of the 2 year trading range. This is around 1.1600. In addition, it is about a 50% pullback from this year’s rally.

Because the bull channel on the daily chart is tight, the odds are that even a 400 pip selloff to 1.1600 will simply be a bear leg in what will probably be a big trading range. However, after several months in a range, the bears will have a chance to create a credible major top. Consequently, the downside risk over the next several months is a big trading range, and not a bear trend.

Overnight EUR/USD Forex trading

The EUR/USD 5 minute chart sold off over the past 30 minutes, but bounced 30 pips. It is testing the support of the August 31 low, which is the bottom of a 3 week trading range. Furthermore, the 1st leg down has lasted 5 bars on the daily chart. That is enough bars in a wedge this size to be at or near the end of the 1st leg down. Consequently, traders will look for the market to stabilize for a few days, and then rally for a few days. Therefore, the bulls will start to buy selloffs, expecting a 100 – 150 pip rally at some point over the next week.

Traders might wait for next week’s FOMC report to get the rally. In any case, because the bears have a reasonable 1st leg down and the selloff is at support, they will take profits and look to sell a 100 – 150 pip rally. This is because they expect a lower high and then a 2nd leg down.

Since both the bears and the bulls expect the selloff to evolve into a trading range and then a 150 pip rally, both will buy selloffs and sell rallies for a few days. The bears will buy back shorts below lows and the buys will sell out of longs above highs. The result will probably be a trading range for a few days.

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