After a Spike and Bull Channel, the EUR/USD daily Forex chart has fallen in a series of 5 sell climaxes to the bottom of the channel, and 7 ticks below the Measured Move target.
Whenever there is a selloff to support and the selloff comes in a series of 4 or more big bear trend bars with little correction on the way down, there is a 60% chance of a TBTL Ten Bar Two Leg reversal up from the support. The overnight reversal came after the EUR/USD fell 7 pips below the Measured Move target and 3 pips below the 1.1100 round number. Although there is still about 40 pips more room to the March 16 bottom of the channel, the reversal at support after 5 consecutive sell climaxes make it likely that the EUR/USD daily chart will begin to correct up this week. The reversal up will probably last a couple of weeks and test resistance levels above, like the May 13 gap, which is about a 50% pullback from the May selloff and 200 pips above the current price.
Since the selloff has been in a tight channel, the 1st reversal up will probably be minor. This means that it will be probably be sold, and the best the bulls can expect over the next few weeks is a trading range. While it is possible that the minor reversal can lead to a bull trend, or that the selloff can keep forming lower and lower sell climaxes, neither is likely. The EUR/USD is in a buy zone for a trade up over the next 2 – 3 weeks.
The EUR/USD is up 35 pips overnight. It has had a 2 legged rally up from Friday’s low. However, there is not yet a strong bull breakout and it is still in a broad bear channel. The context is good for the bulls to get a 200 pip rally, but they need either a reliable bottom or a strong bull breakout before most traders will be willing to swing trade their longs.
The bears know that the odds of much more down are getting small, and they will start taking profits on selloffs. They have been taking them at new lows. Because of the sell climaxes and the support, they might soon start taking them above the prior low. If they do, that could create a higher low major trend reversal and signal the start of a 200 pip rally. While it is possible that the channel down could continue for much longer and even accelerate down, the odds are against it.