There is no longer any doubt. The eight-month uptrend in EUR/USD is over. The chart is broken.

The only question now is: how far will the euro fall?

What we see on the daily chart is that the euro had a strong, steady uptrend that was broken in early December and has been sliding since. Thursday showed a big drop but Friday showed some stabilization, generating a doji star formation that can sometimes indicate a reversal.

When we look at some associated indicators, they show that the euro is severely oversold. The daily Bollinger Bands (in blue and green) show the euro driving down the lower Bollinger. The slow stochasic (red and orange) is deeply in oversold and the RSI has broken down.

All these indicators tell us that there will be a rebound in the euro at some point but our experience also tells us that markets can remain oversold for long stretches at turning points in a market.

The target we have been eyeing through this entire trade is the 200-day moving average (red). It comes in at 1.4187 today, which is nearlywhere the lows from August and the psychological support at 1.42 comes in.

It will be very tempting to go long EUR/USD in the next day if we see these levels. In a deeply oversold market, such convergence of support is generally a great place to put orders and hope they get filled on a sharp drop in the market. If those support levels give way, we wouldn’t rule out a drop to 1.39 in the near term.

Confirmation of the rebound will be found on the hourly chart, where we can see a well-definted downtrend.

We can see that this trend has been tested at least 4 times. It should pose initial resistance to any rebound in this pair. If it’s breached in the near-term, expect the 38.2% Fibonacci retracement level at just below 1.46 to be the next target. Those looking to sell a rebound in EUR/USD will start piling in at that level.

Overall, this is an exciting chart that will continue to add volatility and intrigue to the forex market in the coming weeks. The euro is definitely in a severe retracement following the past 6 months of gains but it’s growing oversold and market participants need to be prepared for a bounce.