The daily chart of the Forex market is in a sell climax and it is testing the October low. Traders are wondering if the selloff was just a sell vacuum test of support or a move down to fill the April 2017 gap.
A breakout below major support usually has a pullback above that support. Also, that small bull day from 3 days ago represents minor profit taking. If today closes around its open or near its high, that would be a sign of a 2nd profit taking attempt.
When there is a sell climax like this and consecutive attempts at profit taking, the odds shift in favor of a bounce. The first target is a move above the October low.
Even though the 1st rally will be minor, this sell climax is extreme. The short covering could last a couple weeks and test the 20-day EMA. But, the bulls need a reversal day. Today or a day next week could be that day.
While the bulls might get a 2-week rally soon, this low is near the gap above the April 2017 high. The EUR/USD probably cannot escape the magnetic pull of that support. Therefore, the EUR/USD will likely close that gap within a month.
Double Bottom With October Low, But Minor Reversal
Finally, the bulls want the short covering rally to become a bull trend reversal. They see a lower low double bottom with the October low. However, the 1st reversal up from a sell climax is usually minor. Traders like to see at least a small double bottom before concluding that the bulls have a chance of a major reversal.
Overnight EUR/USD Trading
The 5-minute chart of the EUR/USD Forex market has been in a 25 pip trading range overnight. The bars are small and day traders have been looking for 10-pip scalps.
Tuesday was a small short covering day. Because there is usually a 2nd attempt at profit taking in a sell climax within a few days after the 1st attempt, traders are looking for a short covering rally to begin within a few days. This could result in several strong bull trend days.
But, there is no sign of a trend so far today. Day traders will continue to scalp unless there is a strong breakout up or down.
Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.