The EUR/USD daily Forex chart has had follow-through buying today after yesterday’s bull trend reversal. The bulls have a double bottom and a nested wedge bottom.
Yesterday’s strong bull trend reversal on the EUR/USD daily Forex chart continued early today. The 2-day rally is big enough so that at least 2 legs up are likely over the next 2 weeks. Furthermore, this could be the bottom for the next several months.
Today’s rally has reached resistance at around a 50% retracement of the October selloff and the 20-day EMA. The October 24 sell climax high is another magnet. The bulls will take partial profits here and bears will start to look to sell for a day or two pullback from the reversal up.
The EUR/USD 5-minute Forex chart rallied 150 pips in a tight bull channel since yesterday’s low. Because that is unsustainable, it is a buy climax. The bulls will soon become exhausted and take partial profits. Instead of buying for any reason, they will become selective. They will wait to buy 20 – 50 pip pullbacks to support. As a result, the strong 2 day rally will evolve into a trading range today.
The bears know this and they will begin to sell reversals down for 10 – 30 pip scalps.
The 2-day rally was strong enough to make both bulls and bears expect a 2nd leg up. Consequently, there will be buyers below, like around Wednesday’s high and a 50% pullback.
Wednesday theoretically was a buy signal bar on the daily chart. Since it had a bear body, it was a bad buy signal. Bears would sell above its high and scale in higher. Since that is reasonable, the odds are they will avoid a loss in their 1st entry at Wednesday’s high.
This means that there should be a pullback within a few days that dips below Wednesday’s high. The bears will buy back their shorts there and the bulls will buy again. This should create a higher low and lead to another leg up.