The EUR/USD Forex market has collapsed after a very strong rally on the daily chart. The break below the bottom of February’s strong rally ended the possibility of that surge being the start of a bull trend. Now, either the 2 year bear trend has resumed or the EUR/USD is simply testing the bottom of its 8 month trading range.
The bulls will probably need at least a micro double bottom before they can get a 1 – 2 week rally. Consequently, traders will sell the 1st 1 – 3 day bounce.
It is interesting that the selloff finally closed the gap from 2017. The rally up at the February 20 low was a strong reversal up from just 1 pip above the bottom of that 2017 gap. Most gaps close. But when a market nearly closes a gap and reverses up strongly, then the gap is likely to stay open. Not here.
The bears want a measured move down based on the 700 pip height of the 8 month trading range. That would be a test of par (1.00). Furthermore, the EUR/USD would be below the 2017 low. Traders would then conclude that the 2 year selloff was a bear trend and not just a protracted bull flag from the February 2018 high.
Overnight EUR/USD Forex trading
The 5 minute chart of the EUR/USD Forex market sold off strongly overnight. It fell below the major support of the February low. That low as the start of a strong reversal up from a successful test of a gap on the daily chart from 2017.
For the bears, it’s mission accomplished. They have no need for the EUR/USD to go any lower today. However, they want the day to close below the February 20 low of 1.0878. They, therefore, will sell any rally to around that level. In addition, they would like the day to close near its low.
The bulls know that the bears want a close below support. They also know that the support is currently 60 pips above the current price. In addition, they understand that there is often a pullback to the breakout point. They therefore will be looking to buy a reversal up today.
Probably sideways to slightly up
The bear trend has been in a tight bear channel for 4 hours. A strong trend like that typically has to transition into a trading range before there is a significant rally.
Over the past hour, the 5-minute chart was in a triangle. There was a small bear breakout and then a small reversal up.
Is this the start of a 50 pip rally to the breakout point? It might be. At a minimum, it creates confusion. Consequently, either the bulls have begun a minor reversal up or the hour-long trading range will continue. In either case, the bulls will buy dips. After such a big selloff overnight, the best the bulls can probably do today is get a rally above the breakout point and convert the bear trend into a trading range.
Because the overnight trend was strong and this reversal up so far is minor, the bears will sell rallies. However, there is no incentive for them to sell at the low. They will probably switch to scalping from swing trading.
Traders should expect either a trading range for the rest of the day or a drift up to the breakout point on the daily chart.