The EUR/USD daily chart reversed down strongly after a 5-week wedge rally and a breakout above the neck line of a head-and-shoulders bottom. It is now testing the gap, the moving average and a higher low in the wedge rally.
The bull breakout on the EUR/USD daily chart failed. The 2-day reversal down was strong. While now testing support, the best the bulls can probably get over the next few days is a small trading range at support. They hope that this selloff is simply a breakout pullback down to support.
I said 2 days ago that most breakouts fail. In addition, I said that the breakout was weak and that the reversal down might test a higher low in the wedge rally. Furthermore, a reversal down from a wedge usually has a couple of legs. Since this is only the 1st leg, the odds are that bears will sell the 1st rally. Hence, the EUR/USD will probably have to have a 2nd leg sideways to down. Therefore, most bulls will need at least a micro double bottom before they will buy again.
Small Trading Range
The bears want a collapse below this support. Because the EUR/USD daily chart is still in a trading range, the bears will probably be disappointed. They need consecutive strong bear bars to convince traders that the 5-month trading range is evolving into a bear trend.
But, the odds are that the trading range will continue. Big Up, then Big Down creates Big Confusion, and therefore usually a trading range. Therefore, today will probably not be another strong bear trend day. Since bulls will not hold for a swing trade without a micro double bottom, the EURUSD daily chart will probably go sideways for a few days. Bulls and bears will scalp. The bounce might again test the neck line of the head and shoulders bottom. Hence, the developing range will probably be about 50 – 80 pips tall.
Overnight EUR/USD
While the EUR/USD sold off strongly overnight, it is testing the bottom of the wedge channel after the strong March 15 breakout. Furthermore, it is back in the 6-day trading range that ended with Monday’s rally. This is strong support and therefore bears will take profits. In addition, bull scalpers will begin to buy. Hence, the EUR/USD strong bear reversal will probably evolve into a trading range today.