EUR/USD: Bulls Giving Up, Market Testing October 21 Low
Al Brooks | Nov 03, 2022 09:40AM ET
- EUR/USD bulls gave up after the FOMC report was released yesterday.
- Bulls tried to keep the October 18 breakout gap open, with the four-bar bear micro channel ending on November 1. The market attempted to break out above the November 1 high but failed and went outside, closing below the October 18 breakout point.
- At the moment, the market is getting close to the October 21 low. The bulls will try and form a double bottom higher low major trend reversal at the October 21 or October 13 low.
- It is common to have a higher low major trend reversal, such as October 13, that forms after too many bear bars in a tight channel. This increases the odds of sellers above and the reverse from the higher low being minor. This causes the market often to need a retest of the October 13 higher low and form a double bottom higher low major trend reversal.
- Traders do not know if the test will be the October 21 low or the October 13 low, but they will see either as another attempt at a double bottom higher low major trend reversal.
- Bears see the selloff that began on October 27 as a double top. They want a breakout below the October 13 neckline and a measured move down below the September low.
- More likely, the downside will be limited, and even if the EUR/USD falls below the September low, the market will find buyers soon. This is due to the daily chart being in a bear channel since mid-2021, and the odds favor the bear channel converting into a trading range. This means that the odds favor sideways to up-trading for some time.
- Another thing to point out is that the monthly chart has a 10-bar micro channel and a parabolic wedge shape. This is climacteric behavior which is not sustainable. Also, the market is far away from the 20-period exponential moving average, which will also limit the downside until the market can get closer to the moving average.
- Ultimately, the market will likely rally back to the 2017 lows and allow the scale-in bulls out with a profit, but that could take several months to happen.
- Overall, traders will pay close attention to today’s close. The bears have a great-looking bear trend bar, but they will have to keep this bar near its low and prevent a reversal up for the entire U.S. Session, which will be a challenge for the bears. The bulls will try their best to reverse today’s bear breakout and disappoint the bears before the close. The selling since the October 27 high is strong enough that the upside is likely limited until the bulls can develop more buying pressure.
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