The market went below yesterday’s bar this morning on the daily chart on the EUR/USD.
After five consecutive bull bars, the odds are the market will get the 2nd leg up that will probably test above last week’s high.
The bulls see the market either in a bull trend or a trading range. The bulls will buy every pullback expecting higher prices soon and a test of the October 2021 low, followed by the August 2021 low.
While the market is always in long, it still has not broken strongly above the January high. This means the market still may be in a trading range, and the bulls could have a much deeper pullback than they would like. Is the current pullback below yesterday likely to lead to a deep retracement of last week’s bull rally? Probably not, but if the bears can get a 2nd entry short, there would be a increased risk of a deeper retracement of last week’s rally.
At this moment, the odds are that the market will break above the January high. However, the bulls’ problem is that their risk is big, and their risk-reward is not great. This means that the bulls will be very quick to get out and will not let their stop hit below the January lows.
My point in bringing up the above is that if the market goes sideways around the January high, more and more bulls may think the probability of the upside breakout does not justify the large risk. Those bulls would exit and look to buy lower. This means there might be a deeper retracement of last week’s rally than what traders want.
Most traders will likely view the past two days as bulls taking partial profits more than bears selling betting on the double top.
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