Since the break below the December 2015 low, I have been saying that EUR/USD's target was the October 25 low. The daily chart broke back above that low last night, yet found sellers. Bulls sold to take profits and bears sold, expecting bulls to take profits at resistance.
The break above that low increases the chances that the November selloff will remain a bear leg in a 2-year trading range. This is because trading ranges typical go beyond support and resistance before reversing. In addition, strong trends do not. While it is possible that the slight overlap could still form a measuring gap, the move above resistance reduces the chances of a strong bear trend. In addition, it increases the chances of a major trend reversal attempt if the chart tests back down to the November low.
Overnight EUR/USD
After a strong rally last night, the EUR/USD Forex market has reversed down 200 pips. This is a strong reversal after a failed breakout above major resistance. It therefore increases the chances of lower prices over the next few days. Because the 3-week wedge rally was in a tight bull channel, the bulls have been strong. Therefore bulls will buy the initial selloff. The EUR/USD right now is at the midpoint of the 4-day rally. Yet the bulls have not begun to buy the 50% pullback.
Sell Climax At 50% Pullback
Because the selling has been climactic and at at a 50% pullback, the odds are that bears will take some profits. In addition, the pullback bulls will begin to buy in this area. Furthermore, the uncertainty of the FOMC report next week might also limit the downside today.
While today could continue as a strong bear trend, it is more likely that it will soon begin to form a trading range. Since the selling was so strong, bears will sell the 1st rally. In addition bulls who have not yet exited the 3-week rally will exit on the 1st rally. Therefore, the first reversal up will be minor. Bulls and bears will sell it. Hence, the best the bulls probably can get today is a big trading range. The bears might get a continued trend down, but the odds are that they will begin to take profits. As a result, at least a couple of hours of trading range trading or broad bear channel trading is likely.