After 5 strong days down for EUR/USD, there should be some minor profit taking soon for a few days.
Today so far is a reversal day. If today closes above its midpoint, it should lead to a few days of sideways to up trading from bears taking profits and bulls looking for a bounce. The selloff has had 3 legs down in a tight bear channel that began Nov. 5. That is a parabolic wedge sell climax, which typically leads to a bounce with at least a couple legs sideways to up.
Over the past 3 days the pair have broken far below the bear channel. There is a 75% chance of a reversal back up into the channel starting within 5 days. This should limit the downside over the next few days. {{|EUR/USD}} can get back in the channel by going sideways or up. Because of the parabolic wedge sell climax, it should bounce.
Can this be the bottom of the bear trend that began in January? It is more likely that the 1st reversal up will be minor. The bulls usually will need at least a double bottom before they can get a bull trend reversal. If there is a reversal up, the 1st target is the breakout point, which is the bottom of the bear channel (blue line). Next is the Nov. 5 low at the bottom of the month-long trading range. Above that is the top of the most recent sell climax, which is the Nov. 9 high.
If the week closes near the low of the week, then this week would be the 2nd consecutive big bear bar on the weekly chart. That would be a strong breakout below last year’s breakout point. The summer rally broke strongly above the Mar. 9, 2020 high. That breakout point should have been support.
Consecutive big bear bars on the weekly chart closing near their lows would make it likely that the selloff will continue down to the next support, which is the June 19, 2020 low of 1.1168.
Prior to this week’s big bear breakout, I said that the bears only had a 30% chance of a break below the bottom of last year’s rally. That is the Mar. 23, 2020 low of 1.0636. Should this week close near its low, the bears would have a 40% chance of achieving that goal. But that means there is still a 60% chance of a rally from above that low. If there is a rally, it could last a couple months.
There should be a rally back into the bear channel over the next couple weeks even if there is a brief leg down for a few days first.
