The EUR/USD daily chart collapsed in a series of sell climaxes. The odds favor a bounce to resistance at the 20-day EMA and the top of the most recent leg in the climax. That leg was the 4-bear bars down to the low of 2 days ago.
The EUR/USD daily Forex chart is in a strong bear trend. Yet, because it has fallen in a series of strong bear legs within a tight bear channel, the selloff is climactic. That is a parabolic wedge sell climax. There is a 60% chance of a rally to the top of the most recent small leg in the climax. That is the top of the 4 final bear bars, and it will be around the 20 day EMA.
Furthermore, a bounce from a sell climax usually has at least 2 small legs and lasts about half as long as the sell climax. Since the selling took place over 4 weeks, the 150 – 200 pip sideways to up move will probably last at least a couple of weeks.
Is the bottom in? When a bear channel is tight, the bulls usually need some kind of micro double bottom before they can get their rally. Therefore, there will probably be at least a small pullback in the bear rally within a few days. That will qualify as a micro double bottom and be the start of a small 2nd leg up.
Parabolic wedge bottoms have a 30% chance of reversing into bull trends without a major trend reversal bottom. Therefore, there is a 70% chance that the rally over the next 2 weeks will either be a bear flag or a bull leg in a trading range.
In either case, there will probably be a test down to around this week’s low. Since there is important support down at the December 12 low of 1.1717 and the November 5 low of 1.1553, the odds favor lower prices over the next couple of months.
Weekly Chart Forming A Reversal Bar
The 2-day reversal has turned the bar on the weekly chart into a reversal bar. The market is now trading around the open of the week. If the day closes above this week’s open, the weekly bar will have a bull body.
While this week’s reversal is good for the bulls, the 2 weeks before were big bear trend bars. Consequently, this week will probably not be enough for the weekly bull trend to resume. Instead, it will probably lead to a pause in the selling for a couple of weeks. The odds are that the bulls will need at least a micro double bottom on the weekly chart before the bulls can regain control.
In addition, the strong December rally begin with the 1.1717 low. The odds are that the weekly chart will have to get there over the next month or so before the bulls will have a reasonable chance of regaining control on the weekly chart.
Overnight EUR/USD Forex Trading
The EUR/USD 5-minute Forex chart rallied about 60 pips overnight. Since this rally is either a bear flag or a bull leg in a trading range, it will probably be weak. Yet, the odds favor higher prices over the next 2 weeks. Consequently, the bulls will buy selloffs.
Furthermore, since the bears know that the daily chart is still in a bear trend, they will sell rallies. Both the bulls and bears know that a trend up or down on the daily chart is unlikely for at least 2 weeks, both will be mostly scalping for 20 – 30 pips.
The swings will soon get smaller, and day traders will then have to scalp for 10 pips. Swing trading bulls will buy dips and hold for a test of 1.2000. Swing trading bears will probably wait for a test of resistance at around 1.2000
