Forex Opinion & Analysis

EUR/USD: Possible Deep Pullback Before Rallying Again

EUR/USD Daily Chart

  • Yesterday was the final trading day of the month. EUR/USD bulls have a bull bar closing on its high for the monthly chart, which increases the odds that the market will have to go above it soon.
  • This means the market will likely have to go above the May 31 high regardless of if the market has a 50% pullback of the May 13 to May 31 rally first.
  • I have stated in the last report that the market may have to have a selloff and form a higher low major trend reversal before going much higher. The reason for that is, as strong as the current rally looks, there are a lot of bear bars which increase the odds of a pullback soon.
  • The channel up to May 31 is tight, and it is a small pullback bull trend. The May 25 low and May 19 high may be a measuring gap that projects the market up to the April 21 high.
  • The market is also at the 2-month trading range low (April 14), which is a logical resistance level to have a pullback.
  • Over the next couple of days, the market will decide between triggering the monthly chart buy signal by going above the May 31 high or having a pullback first, which would form a high low major trend reversal and trigger the May 31 high. Most traders would prefer the market to have a pullback and create a higher low before going above May 31.
  • One final note is if the market does get a pullback before triggering the May 31 high, it is possible that the market has to test last month’s bear close (1.0547). There are disappointed bears who sold the previous month’s close, and if the market tests back to their entry price (1.0547), they would be happy to buy back shorts at breakeven or with a small loss.

 

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