The euro continues to trend lower and last week’s double bottom offers a short-term buying opportunity followed by another sell, writes Al Brooks.
The EURUSD weekly chart has been in a weak bear channel for a year. Last week’s micro double bottom will probably lead to a minor reversal up, like all of the other bottoms over the past year.
The EURUSD has been drifting down since its strong reversal down in May 2018. There have been many credible bottom attempts, but each failed within a few weeks.
However, the bears are failing to get a strong break below the bear channel. The bears have been taking profits at each new low. This means that they are not confident of much lower prices. Also, the bulls continue to buy below the last low, knowing that this has been a profitable trade for a year.
A bear channel is a bull flag
There is no evidence that this is about to change. But there are a couple things that traders should know. If the bears get a strong break below the bear channel, there is a 75% chance that it will fail and reverse up within five bars (weeks). If that were to happen, it would likely represent a transition from a bear channel into either a trading range or a bull trend.
Also, even if there is no climactic reversal up from below the bear channel, traders should ultimately expect a bull breakout. There is a 75% chance that a bear channel will eventually have a bull breakout. It would then evolve into either a trading range or a bull trend. There is only a 25% chance of a successful bear break below a bear channel and then a transition into a stronger bear trend.
However, channels can last a long time. There is no evidence that this one is about to end. Traders will continue to buy new lows and sell rallies, expecting legs up and down to last at least a few weeks.
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