The EUR/USD forex market on the daily chart formed a 2nd consecutive big bear bar closing below the Feb. 5 bottom of a 3-month trading range. This is now a confirmed breakout, which makes a measured move down to the Nov. 4 low likely.
EURUSD Forex sell climax below trading range so short covering soon
But that does not mean straight down. The selloff is a parabolic Spike and Channel sell climax, where Feb. 26 is the spike, and the channel began on Mar. 3. That typically attracts profit taking (short covering), which might have started overnight. It could last a couple weeks, and get back to the start of the bear channel around the Mar. 3 high. At a minimum, there should be a bounce above the Feb. 5 low within a week.
Why is the EUR/USD pausing here? It is testing the September 2018 top of the 2018 bear channel.
Can the breakout fail? Every breakout always has at least a 40% chance of failing. The bulls will need several strong bull days and probably at least a micro double bottom to have a chance of a trend reversal.
Right now, it is more likely that the short covering will last 1- to 3-days and then the selloff will continue down to the Nov. 11 low. That was the start of the bull channel after the Mar. 9 spike up. The EUR/USD should reach the Nov. 4 low within a couple months.
OVERNIGHT EUR/USD FOREX TRADING
The 5-minute chart of the EUR/USD forex market rallied strongly overnight but has pulled back 30 pips over the past 3 hours. That is enough for day traders to expect a trading range. They were only buying since yesterday’s close, but they now will be willing to sell rallies as well, betting on a trading range instead of a continuation of the strong short covering rally.
Can the EUR/USD continue the reversal back down to the low of the session? After such a strong rally in an extreme sell climax on the daily chart, the selloff will probably not get much below 1.19. The EUR/USD should be sideways to up for the remainder of the session.
The bulls want today to close near its high. That would increase the chance of higher prices tomorrow. If the week can close near its high, next week should be higher as well.