- The EUR/USD had a strong breakout last week following a failed breakout of the 2-month trading range. The 2-month trading range ended up being a final flag reversal.
- Bears have had a selloff on the daily chart since May 2021. Last week’s breakout is likely the start of a two-month rally. On the higher time frames, this selloff looks like a bear leg in what will become a trading range, which means the bulls should get at least a rally for a couple of months on the daily chart.
- Last week broke slightly above the January 14th high.
- Bulls want a breakout and measured move up (1.18) of the two-month trading range. (See measured move projection on the chart).
- Bears see last week’s rally as a double top with the January highs and want a measured move down.
- Right now, the odds are that the bulls will get their bull breakout; however, the market is still in a trading range. This means that the market might get a deeper pullback to around 50% of last week’s bull rally. At the moment maybe a 40% chance we get the deep pullback.
- Even if the market has a 50% pullback of last week’s rally, the odds are bulls will get their breakout and measured move up.
- Al mentioned yesterday that the EUR/USD chart is likely telling us that Europe will probably handle it well if Russia invades. I bring this up because it is a good reminder that most news is already baked into the chart. However, as Al said, if Europe does not handle the potential conflict well, it could result in a painful trade and lead to a sharp move back down to the January lows.
- Update: As I am writing, the bears got a sharp reversal down to the lows of the past several days. The bears are trying for a bear breakout and measured move down and ultimately want to reverse the strong breakout of last week. The odds still favor the bulls getting their second leg up and that this bear breakout on the intraday chart is likely just a sell vacuum testing the bottom of the range from the past couple of days.
EUR/USD: Bears See Last Week’s Rally As Double Top
